Beyond Currency

"Chancellor of the Exchequer Rishi Sunak will stand before Parliament later today and present his spending plans for the next year.

In light of the Coronavirus Pandemic a more formal budget for the year ahead was considered inappropriate as the usual expenditure and taxation measures do not necessarily apply right now.

The main purpose of the spending review is to ensure that all Government Departments receive the necessary support to carry on through the next twelve months. How this will all be paid for is, as Sunak said in an interview on Sunday, a matter for another day.

So, Sunak, less than twelve months in the job, will again be seen as the good guy handing out support to every part of the economy. The day will come when he, or his successor, will have the far less palatable job of determining how the largest peacetime Government debt pile ever is serviced.

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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 Brexit talks resume again this week following a pause brought about by a Coronavirus scare, the pressure for a deal to be found appears equalised between both sides.

Andrew Bailey, the Governor of the Bank of England spoke yesterday of his concerns over no agreement being reached before the termination of the transition period on 31st December.

He believes that the chaos that has been wrought upon the entire population by the Coronavirus Pandemic could be dwarfed by the effect on business, and ultimately the economy, by no deal.

Were the country hit by both a Pandemic continuing well into the New Year and an agreement failing to be reached it could affect the country for decades. However, he went on to say that an agreement would help the country recover from the current crisis.

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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.

"Chancellor of the Exchequer Rishi Sunak will announce the Government’s spending plans for the next twelve months this week. In a TV interview yesterday, he was at pains to calm concerns regarding how the expenditure will be paid for.

It is fairly clear that there will be tax increases at some point in the next two to three years but there will be no return to austerity despite the threat of a public sector wage freeze.

There will be more money provided to the NHS with £3 billion made available immediately to allow it to catch up with procedures delayed by Covid-19 and to replace equipment.

The threat of a pay freeze for the rest of the public sector has raised concerns over industrial action, but as Sunak said, there has been a huge amount of struggle for the private sector over the past nine months and the Government cannot immunise those working for local councils etc."

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, U.S. and Eurozone are facing mounting cases of Coronavirus as the second wave takes hold. The UK is in lockdown for another twelve days, President-elect Biden has said that the U.S. won’t enforce a total lockdown, while in the Eurozone speculation is rising that those nations that have put lockdowns in place will have to extend them as they have not had the desired effect.

However, with each country facing additional issues, Brexit for the UK, the outcome of the election for the U.S. and a mounting bad debt mountain in the eurozone, the financial markets are struggling to decide how their respective economies will fare.

Unprecedented levels of Government debt threaten the entire financial system while the amount of QE being undertaken by the Central Bank and the threat of a move into negative interest rates will create a journey into the unknown. "

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.

"With the Government in a lockdown induced state of limbo as it awaits an expected fall in cases, Brexit is set to become the dominant factor driving the financial markets.

The negotiation period is definitely coming to an end despite there having been calls from several places for the transition period, due to end at the end of next month, to be extended.

As things stand, no matter what is or is not agreed in the coming days/weeks, implementation is going to have to be done in real time.

The ECB has warned that banks who wish to operate in the EU must not use the Pandemic as an excuse to drag their heels over the transfer of staff expertise from London to the major European Financial centres of Paris and Frankfurt."

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 spoke yesterday of his optimism over the news that highly effective vaccines are now being produced.

However, he still sees a high degree of uncertainty in the coming months brought about by both the current lockdown restrictions and how the Brexit negotiations will finally play out.

Bailey went on to say that he has seen evidence of business investment being unusually restrained and this has fed through into a significant slowdown in productivity. He hopes that the news about a vaccine will begin the process of releasing the shackles on investment.

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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 hard to say how many times over the past eighteen months we have been told that it is crunch time for a deal to be agreed between the UK and EU to avoid the turmoil that would be created by a no deal Brexit.

It is therefore difficult to write that the negotiations really have reached crunch time and it is now or never since there are only six weeks to go until the transition period expires and the UK is set free or cast adrift depending on your view.

It is astonishing that London and Brussels are still calling on the other to make the necessary concessions to get a deal done.

There is still a degree of optimism that in the end both sides will see the error of their ways and come to terms over the remaining sticking points.

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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 has become apparent over the past month or so that both sides have realized that a trade deal between the UK and EU is in everyone’s best interests and, more importantly, that neither can expect perfection.

While that realization is yet to manifest itself in any concessions, there is a growing degree of optimism that this week could be vital, particularly as it is fast becoming a case of now or never.

This year was intended to allow for a transition period in which both sides got used to the new regulations, but instead it has brought confusion and concerns that come January, when the sabre rattling ends, all that will be left will be confusion and a logjam at Channel ports.

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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 grew by 15.5% in the three months to September but remains around 25% smaller than it was pre-Pandemic.

In comments made following the publication of the Q3 GDP data, Chancellor Rishi Sunak admitted to concerns that the economy was slowing before the country went into the current lockdown but went on to say that there are signs that give him a cautious optimism and the news of a vaccine provides a genuine chance of a return to normal.

It is obvious that the regional restrictions that were in place prior to the lockdown started in motion a fall in activity and the Bank of England's latest data predicts a 2% fall in GDP in Q4.

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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.

"In the past, faced with either cutting services or increasing taxes, a Conservative Government would have chosen cuts. However, in order to comply with Boris Johnson’s pledge to increase Government investment in infrastructure, the NHS, and local Government, Sunak is planning to take a most unconservative path and raise taxes.

To go against the grain even further, it is Capital Gains Tax that is first in his sights. This is the tax that applies to the profit made on the purchase and sale of an asset and is something that applies far more often to Conservative than Labour voters.

A Government review of taxation has suggested that the rate of Capital Gains Tax should be doubled. Even this measure would bring in a relatively small proportion of the additional borrowings the Government has undertaken but is seen as symbolic of the Government’s commitment.

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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.