Beyond Currency

"The threat to the total lifting of lockdown restrictions scheduled for a little over three weeks is growing.

Rising cases of Covid-19, 75% of which are thought to be the Indian Variant, are being closely monitored by Government scientists.

The Prime Minister commented yesterday that England may have to wait for the full lifting of restrictions, although he went on to say that he saw nothing in the data that suggests a delay will be necessary.

The fallout from Dominic Cummings’ comments to a Parliamentary Committee this week appears to have fallen almost totally on the shoulders of Health Minister Nick Hancock.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Bank of England has begun to consider how the UK’s banking market will look post-Brexit as it waits to see the effect of the Pandemic on the wider economy.

Capital adequacy regulations are being considered with banks that retrench back into the UK being required to allocate less capital to their domestic operations and thus being able to increase lending.

This will be in line with what was happening pre-Pandemic across Europe as banks looked to concentrate on core businesses, relying less on more capital-intensive areas like trading financial assets.

This should provide companies that are cash hungry as they begin to reopen following lockdown to access facilities to support their operations until cash flow becomes more settled.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"As was mentioned yesterday, the UK Government is beginning to turn its attention on issues that have been paused while the country was in lockdown during the Pandemic.

There are several outstanding issues over the Brexit trade deal with the Irish Protocol having the most potential to bring about a major disagreement.

EU Commission President Ursula von der Leyen has already stated that tensions in Northern Ireland recently owe less to the protocol and more to the concept of Brexit itself. That comment neatly abrogates responsibility for Brussels intransigence over the apparent separation of Northern Ireland from the rest of the UK.

In the eyes of Loyalists and Unionists the protocol that is still subject to full ratification is designed to push the north into the arms of Dublin.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The news that the two major Covid vaccines are effective against the Indian Variant of the virus have provided the UK economy with further impetus as the country is within a month of the full lifting of restrictions.

Unless there is a significant change to the data in the next two weeks, the country will be able to reopen completely.

The Government has begun to look at life after Covid.

Post-Brexit trade deals are being negotiated. The most important agreement will be with the U.S. although it looks as though the steel industry will be sacrificed to ensure that the deal goes ahead.

The UK’s trade minister is studying the lifting of tariffs on UK imports from the U.S., clearly a demand made by American negotiators.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"Bank of England Governor, Andrew Bailey, has joined in with his colleagues from other G7 Central Banks in downplaying the long-term effect of rising inflation on the country’s economy as the UK emerges from the Coronavirus pandemic.

When weighed against a tightening of monetary policy which could cut off the recovery almost as soon as it has begun, inflation is being blamed on transitory as opposed to structural factors and is expected to even out as both the UK economy and those of its largest trading partners reach a degree of equilibrium.

As has been seen in the aftermath of recent FOMC meetings and the release of their minutes, commentators, traders, analysts, and investors are clamouring to understand the tools that Bailey has at his disposal to tackle inflation should it begin to rise at a wholly unexpected pace.

Never before has there been such concerted support and stimulus pumped into the economy.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The success of the UK’s vaccination programme has allowed the country to proceed without any problem along the path towards a full reopening of the economy.

There are clearly still several bumps in the road to be negotiated and having come so far, there is genuine concern that the Indian Variant that has been seen in several areas of the country could delay the whole process.

Prime Minister Boris Johnson remains cautious, saying all the right things about maintaining social distancing etc., so unless there is a major change to the current data the full removal of restrictions remains on schedule.

Inflation was always known to be the likely outcome of the measures that have been put in place to help economies survive the Pandemic. The rate at which price increases will take place appears to be varied according to how the stimulus has been applied.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK has joined the group of developed economies that are beginning to see inflation point towards an overheating economy.

The difference to the U.S. in particular is that at the height of the first lockdown when the economy was hit hard, the UK economy was one of the worst affected in Europe. It therefore is recovering from a very low base.

The Bank of England will not yet start to be questioned over a change in policy to calm price growth.

Governor Andrew Bailey still sees growing inflation as transitory caused most by supply not keeping up with demand, although the jump in wages seen in yesterday’s employment report will serve as a cautionary reminder.

Clothing and footwear prices were the two unsurprisingly dominant increases adding to consumer prices. First, those sectors saw a seasonally unusual fall in February and the reopening of non-essential retail saw demand grow exponentially.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK’s employment report which was released yesterday continued the understated recovery that the country is seeing from the Coronavirus Pandemic.

There are several issues which may happen later in the year around inflation and further stimulus to derail the rosy glow on Boris Johnson's cheeks. One Of the issues could be the lack of a skilled labour force.

There has been a surge in ambition from those who worked in hospitality and were either laid off or furloughed during the various lockdowns. That has meant that as the reopening has begun bar staff, waiters and kitchen staff appear to be in short supply.

At the other end of the skills spectrum, the absence of a full year's training has meant that certain skills in engineering and manufacturing could also suffer.

On the surface, yesterday’s data was encouraging without being spectacular. The unemployment rate fell, from 4.9% to 4.8%, as did the number of claimants. The fall was less than seen last month but the trend remains positive.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The UK is experiencing its first major setback since the delivery of the vaccine began late last year.

The Indian variant is beginning to ring alarm bells for the full reopening of the economy next month.

The degree of uncertainty that the spread is bringing is casting a long shadow over the pace of growth.

A further lockdown, while unlikely, would spell disaster for the hospitality and leisure industries.

The reopening that took place in April showed that measures at that level are manageable but cannot provide sufficient cash flow for several businesses to survive let alone flourish.

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Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

"The Roadmap for Recovery announced several months ago by Prime Minister Boris Johnson has hit a bump in the road with the spread of the Indian Variant in the U.K.

Last week provided a chilling reminder of the Government’s perceived dithering over the timing of lockdowns and other measures as the first and second waves began.

There is growing confusion about both the seriousness of the outbreaks together with the effectiveness of the vaccines that are currently being administered.

Words like hope, expect, and believe carry no weight without the endorsement of the scientific community."

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.