Beyond Currency

"As Rishi Sunak continues to prepare his budget which will be delivered on March 3rd, he is also preparing his long-term plans for repaying the debt that has been necessary to take on to combat the worst economic effects of the Pandemic.

Despite his not being a Party of taxation, it is inevitable that taxes will rise during the term of this Parliament. It is laudable but also somewhat theatrical to say that the country is going to grow its way back to financial health, but the reality is somewhat different.

The levels of growth likely to be seen over the next three or four years are expected to be healthy, but little more.

Although the issues with Brexit appear to be coming to an end and there is no doubt that the vaccination programme has been a major success story for the country, a significant post-pandemic shift in output across the entire economy would need to happen for taxes generated from businesses and individuals to be anywhere near sufficient.

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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.

"Despite a series of high-profile errors in its reaction to the Pandemic in the UK, the Government is looking very likely to reap the benefit of its only major success.

It may very well be that the fact that it managed to order so many doses so early was sheer luck, but getting ahead of the game just once, could prove to be the decisive act economically, if not socially.

At yesterday’s Covid-19 press briefing the Prime Minister announced that he would announce the roadmap out of the lockdown restrictions next week and that progress would be cautious but irreversible.

It is likely that schools will reopen on March 8th as the first of many actions that will slowly return the country to something approaching normality.

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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 media has been full of stories of how the UK economy collapsed to its worst performance in 312 years but, in reality, that has no bearing on the growing optimism about how the economy will perform going forward.

While employment still concerns analysts, the fact that, differently to most recessions, there is a huge pile of pent-up demand growing which will burst like a dam once the lockdowns are lifted.

Fifteen million people have now been vaccinated. This puts the UK way out in front of other G7 economies.

Pressure is growing for the Government to start a phased reduction in restrictions and the Prime Minister has announced that he will announce a roadmap of just how the lifting of lockdowns will begin on February 22nd. This week is sure to be full of exclusives about how the plan will work.

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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 developing row between London and Brussels over UK access to the EU’s financial markets is beginning to turn ugly.

The EU Commission appears to be stealthily working behind the scenes to not only promote Paris and Frankfurt as alternatives to London but to actively limit UK access.

The work towards an agreement is something of a phoney war. On the surface, the UK is unwilling to agree that it will mirror EU regulation for financial services, since it cannot agree in advance to any change in regulation that it may deem to be detrimental to its interests.

However, the real battle is for supremacy in the incredibly lucrative financial market, where London has always held the upper hand.

Brussels sees Brexit as the perfect opportunity to supplant London. It is similar to Brussels jealousy over the dollar’s position in the global economy, although the UK Prime Minister Boris Johnson says that all he wants is a level playing field and is willing to continue discussions until a workable compromise is found.

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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.

"Andrew Bailey, the Governor of the Bank of England warned yesterday that the EU is determined to keep the UK on a tight leash when negotiations begin about UK access to EU financial markets.

The EU wants the UK to confirm that its regulations won’t stray too far from Brussels’ own regulations while the UK believes it cannot agree to abide by rules that may be added in the future that could conflict with its best interest. Bailey believes the EU is trying to hobble the UK and the standing of London as the world’s premier market and try to promote Paris and Frankfurt as viable alternatives.

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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 economy also showed signs of improvement with like for like retail sales increasing by 7.1% year on year in January versus a 4.8% rise in December. This comfortably beat analysts’ predictions.

The GDP estimate for the three months to January will be released later this morning with estimates of a 0.9% increase the average of analyst’s predictions.

Investors' net long Sterling positions continue to increase as the market's view that the UK will be among the leaders if not the first to be able to lift its lockdown.

Friday will see the release of a raft of data that will provide evidence of the level of improvement (if any) in the economy. However, other than preliminary Q4 GDP data, it is leading indicators that are drawing the most attention.

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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 Government often charged with over-promising and under-delivering is determined to take full advantage of the positivity generated by the success of its vaccination programme to lay the foundations for a strong recovery as soon as they feel it is safe for lockdowns to begin to be lifted.

Chastened by criticism that he made several bad calls last year, the Prime Minister is determined that he listens to every piece of advice he receives, studies each data point and is inclusive of his planning not just for the recovery but the continued support for those individuals and businesses most affected by the Pandemic.

However, there are still dark clouds on the horizon as unemployment continues to rise and issues over Brexit remain a drag on activity and output.

The volume of goods leaving the UK for Europe fell by 68% last month compared to a year earlier."

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 everything is at a record low the economy can only go one way. As Rodney Dangerfield says in the immortal Caddyshack, “Everyone’s Buying? Then sell! Everyone's selling? Then buy!”

The first part is coming to an end, hopes are growing that the second part is going to see hospitality, services, employment, and output grow exponentially from pent-up demand when the various lockdowns are relaxed.

Chancellor Rishi Sunak has already acted, loosening the conditions on loans granted to small and medium sized businesses to enable them to survive the crisis.

£45 billion has been borrowed by around 1.4 million businesses and Sunak has agreed to extend the tenor, if requested, of those loans from six to ten years. This is a show of confidence in that sector of the market to both survive and prosper as this scheme will allow firms to pay as they grow.

Payment holidays and interest free periods will also be part of the scheme.

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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.

"Yesterday’s Bank of England MPC meeting was more positive about the recovery than it has been for some time. This allowed talk of negative interest rates to be slipped onto the back burner with little comment.

It has emerged that the Bank canvassed 160 lenders in the UK to understand the practicality of how negative rates would work in practice.

The operational difficulties for banks led the MPC to agree that it would provide the market with six months’ notice of such a move.

This appears rather curious in that it is fairly obvious that the economy is in an extraordinarily precarious position and should the MPC believe that such a radical move is warranted, it is then prepared to wait two quarters to implement it.

The rollout of the Covid 19 vaccination programme continues at a startling pace.

The country had become accustomed to this Government having to make excuses for delays, whether they be Brexit related or in the reaction to the fast-moving effect of Coronavirus, over its entire term in office but with now well over ten million jabs having been provided, a corner may have been turned.

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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 the discovery of a vaccine to halt the spread of Coronavirus was announced, it was proclaimed as a game changer.

Yesterday, the UK announced that the country had passed ten million jabs, and that the target of completing the vaccination of the four most vulnerable groups by the end of next week is almost certain to be achieved.

Indeed, the game does appear to have changed.

The country’s Chief Medical Officer Chris Whitty announced that the science now confirms that the UK is past the peak of the second wave of infections.

He did warn against the relaxation of restrictions in the short term, but the combination of the lockdown and vaccinations means that the UK is about to begin the long road back both economically and socially.

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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.