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Sterling becomes worst performing G10 currency this month-to-date.
The pound is the worst performing G10 currency this month-to-date, it may be the case that much of the good news has now been priced into the pound.
HSBC have recently warned their clients that the pound looks overpriced, “The currency looks stronger than rate differentials might warrant, while other nations will eventually close the gap on the UK’s early lead in the Vaccine rollout race. GBP may languish without fresh impetus”.
Research from NatWest Markets shows the UK’s early vaccination gap could be closed, eliminating the pound’s demand, especially as other developed nations start to invest heavily in vaccine development.
Despite the pound showing signs of fragility, Kurran Tailor an analyst at Citi says, “Sterling is well placed to continue its outperformance on the crosses, particularly against the euro.” The UK’s reopening plans remain on track (for now), so the pound could well see another push providing positive Covid results in the next announcements. We have not yet been told when the next announcement will take place, it will be unlikely to happen this week as business in Downing street is being paused due to the death of the Duke of Edinburgh and his funeral on Sunday. With the pubs now reopened, you cannot help but suspect the infection rate may rise.
The next date in the timeline is May 17th, where the rule of six will be allowed indoors, amongst other things.
Andy Haldane leaves Bank of England's monetary policy committee
As reported earlier in the week, Bank of England Chief Economist Andy Haldane will be leaving the Bank’s Monetary Policy Committee.
Mr Haldane is known for being hawkish (optimistic) towards the UK’s economic future and has favoured a move towards raising interest rates, which would be seen as positive for the UK economy and the pound’s value.
Why does this matter? With Mr Haldane no longer a part of the Monetary Policy Committee, this opens the door for a shift in the Committee’s stance, depending on who replaces him, which could affect interest rates and the pounds value moving forward.
To keep on top of the latest Monetary Policy Committee news or vaccination rollout, get in touch with your account manager here at Foreign Currency Direct.
Eurozone vaccine rollout ramps up, causing EUR value to jump
The euro to US dollar rates have recently favoured the euro, moving back above the 1.19 level. As mentioned in the sterling section, the euro is enjoying a short period of recovery against the pound currently at seven-week highs.
The euro has interest amongst investors as the vaccination campaign seems to be stepping up a gear, meaning economic recovery will not be too far behind the US and UK. France, Germany and Italy have increased their vaccination rates this week.
France delivered 510,000 doses last Friday alone, which shows their intent. Yvan Mamalet, an economist at Societe Generale has reported they expect “70% of adults will be vaccinated by the end of the summer” assuming there are no further delivery problems. This statement can sum up the current situation and currency value of the eurozone. If their vaccination programme can be rolled out without any hick-ups or delays, then the euro could continue to benefit. If, however, there are problems with the delivery of vaccinations, the euro could go down a gear and struggle against most major currencies.
We have recently heard of the issues surrounding Johnson & Johnson-Janssen vaccine, which could delay the vaccination rollout within the EU and ultimately damage the euros value. J&J’s vaccine makes up a large part of the vaccination programme in the EU, without this jab it would take until December to inoculate 70% of the population (compared to the current target of summer), which would be a big blow to the EU’s recovery time.
In Germany, the number of people who have received the first jab jumped by more than a quarter within a week to 12.7 million.
The currency markets appear to be reacting to news regarding the vaccination programmes around the world, keeping up-to-date with your account manager will be important in the coming weeks.
Lack of monetary policy action hampers USD recovery
There have been a number of positive economic readings in the US of late. Inflation came out ahead of expectation and March non-farm payrolls showed the economy creating just under 50% more jobs than anticipated.
Despite this very good news, the US dollar has struggled to make any real gains against most major currencies, why is this? Lee Hardman, a currency analyst at MUFG stated “The Fed’s continued commitment to loose monetary policy remains a key assumption behind our view that it is still too premature to expect a sustained US dollar rally”. So, disappointing price action has failed to strengthen the US dollar on the back of some very good economic results.
Jerome Powell, the Fed Chairman has a positive view on the state of the US “We feel like we’re at a place where the economy’s about to start growing much more quickly and job creation coming in much more quickly”. Despite the positive tones, Mr Powell hinted they would not be making any sudden changes of policies in the short term.
The general feeling amongst investors is that there is around a 50:50 probability the Fed will lift rates by the end of 2022. Before the Fed can think about this, it will need to wind down its quantitative easing programme which currently stands at $120bn per month. If a country raises interest rates, it is generally a sign the economy in question is performing well, so any hints towards an interest rate rise could influence the US dollars strength.