GBP rallies against the Euro and US Dollar

COVID-19 remains a key driver on the value of currencies globally, especially as the world recovers from a deep recession brought on by the pandemic.

Globally there has now been over 800 million vaccinations administered and the International Monetary Fund now expects the global economy to grow by 6% this year and 4.4% in 2022, the fastest pace since they started recording this some 40 years ago.

Global trade has also been climbing recently with January numbers at an all-time high and almost 6% higher than in the same period in 2020. Even US-China trade flows in March reached a new peak.

Saying that, the speed of the vaccination roll outs, restrictions being lifted and economies rebounding are not equally split, as a result this is causing an ever-changing impact on currency values globally.

Government spending and different policies can also be seen along with the disproportionate dependency or contribution of the social economy like pubs and restaurants to a countries overall GDP figure.

UK economic recovery and GDP forecast

Both the UK and the US have been widely perceived to start this recovery well. This perception was widely attributed to the recent gains seen for sterling until the beginning of the month when GBPEUR levels reached multi month highs. Since then, there has been an uplift of vaccination roll outs across Europe and the GBPEUR exchange rate has fallen almost 2 cents lower than just two weeks ago showing how quickly things can change.

In the UK, following the announcements in the March budget the injection of fiscal stimulus was the equivalent to 3% of the GDP of the economy. Deloitte recently has now upgraded the UK’s GDP forecast to 5.8% in 2021 and 5.7% next year.

UK vaccination numbers now stand at over 32.8 million first vaccination doses and 10m second doses. This translates to 62 doses per 100 adults compared to the US at 60 and both France and Germany at 25.

Economically in the UK it was recently reported that the UK economy grew 0.4% month on month in February but remains 7.8% smaller compared to 2020 numbers. All pointing towards the impact of the lockdowns on overall economic activity.

Yesterday there was a climb in sterling value against most currencies. The pound sits now close to a 1 month high against the USD climbing by over 1% at times in the day. Against the single currency the pound climbed by nearly a cent and now sits at a 10-day high and within 2 cents of the year high for the pairing.

Today all eyes are on unemployment figures released earlier today, these came out showing a drop to 4.9%. Markets may well react to this news through this morning’s session. Tomorrow Consumer Price Index takes the lead along with Retail Price Index.

European Central Bank update this week

Yesterday the euro strengthened against the USD but fell against the pound like most currencies. EURUSD rates now sit close to a 6-week high but generally the euro has been generally falling out of favour due to settlement of prolonged lockdowns across Europe with a lower vaccination take up when compared to the US and the UK. An example of this was a recent poll by Reuters of economists which have now cut their forecasts for the euro area due to the backdrop of rising infection rates and the slow vaccination programme.

Other recent economic indicators from the block consist of retail figures which for February were 3.0% higher than in January but 2.9% lower than in February 2020. Euro area industrial production has also shown to have fallen by 1.0% in February compared to the previous month, while UK industrial output grew by 1.0% in comparison.

Going forward this week all focus is on the important European Central Bank (ECB) interest rate decision on Thursday. A change in current interest rates is not expected however further commentary about the current stimulus policy within Europe could well be announced.

Currently the fiscal support from the ECB is widely regarded to be lower in comparison to the UK and the US following the announcement of the UK budget back in March and President Bidens $2 trillion fiscal stimulus package,

This week, the market will be keenly watching for an indication of any timelines for this further injection, if sooner rather than later the euro could well climb in value making it more expensive to buy with the pound.

Politically, any further updates about the recently started legal action by the EU on the UK over the arrangements for Northern Ireland could be key. These talks have recently intensified with the European Commission recommending that the UK should not be allowed to re-join the Lugano Convention which governs the jurisdiction of legal disputes. This being disappointing for the UK legal services industry, however the decision is ultimately down to national governments of EU member states.

US unemployment continues to fall

GBPUSD rates climbed by over a 1% in yesterdays trading now sitting at a 1-month high and close to the 1.40 level at the inter-bank market. A multi-year high was recently hit at 1.42 meaning the current levels available, excluding a 4-day period, could be preserved as an attractive level for consideration.

Within the US recently we saw retail sales grew by 9.8% between February to March as further stimulus payments were spent. It was also confirmed that industrial production grew 1.4% over the same period. US unemployment claims fell to 576,000 in the week ending 10 April, this being the lowest level since before the pandemic. US inflation however were confirmed to have risen to a rate of 2.6% in March, its highest since 2018 which has been put down to a recent rise in energy prices.

The recent climb in growth across equity markets seen in the US has been put down to the Biden administration's $2tn fiscal stimulus package. It would seem that US policymakers want to shock the economy into levels of activity to create a drop in unemployment which has recently showed signs of climbing. Fed chair Jay Powell vowed to maintain the central bank’s asset purchase programme until “substantial further progress” was made in the labour market at his last address.

This level of fiscal investment has resulted in the International Monetary Fund (IMF) to change their forecasts of the size of the US economy upwards which if achieved, is a higher level of activity than they had forecasted before the pandemic. In essence, the suggested the size of the US economy could be bigger in 2022 than had COVID-19 not happened. Saying that government debt in the US continues to climb to previously unseen levels. Economically this week Thursday is the key day for the USD with initial jobless figures released.