Beyond Currency

"The level of fatalities from Covid-19 in the UK has dropped to a level not seen since the early days of the Pandemic and infections have now begun to follow.

The rollout of the vaccination programme has been a major success, but the Prime Minister attributes the success in bringing the virus under control to the vaccination programme and the third lockdown in almost equal measure.

For this reason, while the next stage of Boris Johnson’s roadmap to recovery will take place in the middle of next month concerns remain that there could be another spike.

There has been no indication yet about when the confirmation of the lifting of more restrictions will be made but even to the untrained eye the programme has been a major success.

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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 the Bank of England prepares to raise its forecast for growth in the UK for this year, Chancellor Rishi Sunak is preparing to start to withdraw some of the support packages he initiated as the country went into lockdown.

The furlough scheme is already set to end in September.

The consequences for the jobs market are the unknown that will exercise the thoughts of members of the Monetary Policy Committee when it meets next week.

It is still too early for a physical change to official rates, or the level of support being provided thorough QE, but any change in the conversation around negative rates will provide traders with an opportunity to express their views in the FX market.

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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.

"When reviewing the likely drivers for Sterling this week, the Prime Minister’s curtains did not feature very high on the list.

Following the Conservative Party's victory in the 2019 election, it was clear that the Opposition Parties would spend the next five years with very little opportunity to affect policy and in these circumstances, the best they could do was snipe and disrupt.

Brexit afforded the perfect opportunity to criticize but the Prime Minister managed to pull a deal out of the dying embers of the negotiations. No matter that in the grand scheme that it didn’t satisfy everyone, that was always the nature of Brexit, but it has formed a basis for the Government to comply with the wishes of the electorate.

Now, Boris Johnson faces two entirely separate issues that will make him uncomfortable but little more.

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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.

"It is becoming clear that forecasters may have underestimated the pace at which the UK economy is recovering from the Covid-19 Pandemic.

As data continues to be released for Q1, it shows that the recovery actually began when Prime Minister Boris Johnson announced his Roadmap setting out the stages at which the country would return to normal.

Businesses began to hire or re-hire staff in anticipation of a surge in activity while the public began to see the light at the end of the tunnel.

While Q1 GDP growth will be negligible, the continued increases being made to 2021 estimates has its roots in an underrating of the pent-up demand and the eagerness of the country to return to normal.

Fundamentals for the UK economy have turned positive with leading indicators improving every month.

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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 economy remains on track to complete its reopening by the middle of June.

Deaths due to covid-19 are still falling as the success of the vaccination programme together with a well-managed plan to gradually reopen the economy mean that the country will return to the level of activity and growth it saw before March last year far faster than analysts had believed possible.

Major investment bank Goldman Sachs believes in a report released recently that the UK economy will grow at a very healthy 7.8% this year. That tops their expectation for growth in the U.S. This is higher than a Reuters poll of analysts which averaged 5% and the IMF’s projection which is slightly more bullish at 5.3%.

Despite this optimism there are still fears that the reopening will see the release of pent-up demand that will fade as quickly as it arrived.

Data released last week saw retail sales begin to show significant growth even before the April 12th reopening of non-essential retail.

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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.

"Data will be released later this morning that will show just how powerful the recovery has been as the economy begins to reopen.

Markit Economics will release Purchasing Managers Indexes for both services and manufacturing. Given the 80/20 spilt between services activity and manufacturing activity, the services PMI naturally carries significantly more weight than the manufacturing number.

It is expected that both will see significant rises. The data is a measure of expansion or contraction with a read below 50 signifying contraction and above 50 expansion.

Manufacturing output which accounts for 20% of economic output is expected to have risen marginally while services, which now dominate the economy, sees an increase from 56.3 to 59.5.

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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.

"Most indicators are now showing that the UK is recovering from the Coronavirus Pandemic and remains on course to complete the lifting of restrictions as the two final pieces of the roadmap jigsaw are set to be in place over the next couple of months.

While scientists still voice concerns about variants of the virus emerging in other countries, the UK's infection rate, hospitalizations and fatalities continue to fall.

The turnaround from being the one of the most significantly affected economies in G7 to being likely to be the first to emerge completely from restrictions has its roots in the development of the vaccination.

The work that has been done to ensure its distribution and the willingness of the population to be guided by the science and the Government's continued urging were also significant factors."

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.

"Yesterday’s release of the latest unemployment data showed how businesses prepared for the reopening of the economy but may prove to be something of an outlier as the economy fully reopens.

The country remains on schedule to reach the next stage of the roadmap next month and over ten million people have now received both doses of the vaccination.

As the reopening continues, the economy is set to grow at a far higher rate than analysts expected pre-vaccination and is likely to achieve the level it was at before the Pandemic struck faster than any other developed nation outside of the U.S.

However, without significant support for businesses and their cash requirements this could easily be the high point for the data. Small and medium sized firms will struggle to generate sufficient cash to not only increase staff members but retain those they have currently.

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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.

"Unemployment data is due for release today in the UK. Rising jobless numbers are one of the unwelcome outcomes of the economic effect of the Pandemic.

Many businesses, particularly in the retail and hospitality sectors have seen cash reserves dwindle during the lockdowns and have now simply become unviable. Added to this, just what the new normal will look like is bringing its own level of uncertainty.

Rishi Sunak the Chancellor of the Exchequer was rightly praised for both the speed and efficacy of his plans to support the economy over the entirety of the Pandemic.

However, as his furlough relief and other measures come to an end, he must now put in place schemes to not only support but also stimulate the marketplace.

Retaining schemes, skills courses and fiscal benefits to business must be at the top of his list of priorities as the furlough scheme runs out.

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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.

"This week will see the release of data for inflation and employment.

Despite the positivity that has been created by the latest release of the lockdown the number of people who lost their jobs is expected to rise by close to 100k taking the unemployment rate to 5.2%.

The data will be released tomorrow.

House price data has been released overnight and the Chancellor’s stamp duty holiday continues to drive the market higher.

Year on Year house prices across the UK rose by 5.1%. That is significantly higher than last month which saw a rise of 2.7%.

The reopening of several sectors of the economy has driven consumers to release a large part of the huge build-up of savings that took place over the past year. Bank of England Governor Andrew Bailey estimates that £150 billion was accumulated and is now returning to 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.