Sterling
Last week the UK Covid case numbers grew again. Last week the UK recorded 239,342 COVID-19 cases in the seven days to 26 September, which was an increase of 15.4% on the previous week. Breaking down the numbers, most put this climb in the case numbers across school-age children which have reached a new peak for that age range recently following the return to school. Hospitalisation numbers, which track a week later, were down 16.2% on the previous week. Latest vaccination numbers stand at 137 doses per 100 people in the UK where the US is at 116, Germany 127, and France at 139.
Even though further Covid shutdowns remain a worry for all with an exposure to the currency market due to the link to the economic hit, the tone from the media seems to have dropped in its likelihood. Professor Neil Ferguson, who is a member of UK government scientific advisory group SAGE, said that it was unlikely that the UK would return to a “full blown lockdown”. Saying that the long-term impacts on the health of the population is still alarming. A report by the Institute for Public Policy Research estimated that the backlog in cancer treatment in England could take up to a decade clear without additional resources.
The media focus of late has been that on the driver shortage across the UK impacting shelves and inflation. The focus has been on that of petrol and fuel distribution. UK Prime Minister Boris Johnson has approved plans to issue visas to foreign truck drivers following the closure of some petrol stations due to a lack of tanker drivers, the FT reported. It was also reported yesterday that the competitive rules between firms have been relaxed allowing them to share data around where the shortages are worse.
The knock-on impact to the value of the Pound is unclear at this pint but the worry is that it could have an impact on the booming Christmas period for Retail where traditionally a large amount of revenue is created and when historically most retail firms turn their annual numbers into profit.
Economically UK consumer confidence fell to its lowest level since April recently. The end of the Universal Credit uplift next week and the rising cost of domestic fuel will likely put pressure on household finances. Elsewhere of note was UK government borrowing, which was higher than expected in August, in part due to higher inflation raising the interest payable on inflation-linked debt. All this points towards more inflation down the line, the conversation on inflation is whether this will be a short-term spike or more of a long-term challenge for central banks to manage. The OECD revised up its forecasts for inflation across developed economies and warned that policymakers faced a “very difficult balancing act”. The Bank of England said that UK inflation was now likely to peak above 4% this year as it kept interest rates on hold at 0.1%
Next on the economic calendar for the UK is tomorrow’s money supply numbers and new lending. Thursday is GDP figures day for the UK and by far the largest event for the week for anyone with GBP exposure.
Dollar
In the US, Covid remains a driving point. Recently they reported an average of approximately 2,000 deaths a day. This compares to a peak of roughly 3,400 deaths a day in January. US president Joe Biden announced that the US was doubling its donation of vaccine doses to developing countries to $1bn. There remains a drive by nations to increase the vaccination roll out to raring degrees. For example, in Australia, who have been behind other nations in the roll out, saw three days of rioting in Melbourne in protest against lockdown measures as a result.
US bond yields rose to their highest level since July on the expectation that the Fed would soon start to taper bond purchases and worries over the US debt ceiling. The FT reports that US Democrats are planning for a major push on Capitol Hill to salvage Joe Biden’s legislative agenda and avert a government shutdown. The US Fed said that it would start reducing its monthly bond purchases soon and signalled that interest rate rises may come sooner than expected.
Economically, yesterday we had US Durable goods numbers, this showed a climb which was in line with expectations but also strengthened the USD value making it more expensive to buy. Today we have a number of releases including housing data and more speeches by the FED chair, Powell, which will certainly be interesting with the heated conversations as mentioned above.
GBPUSD levels now sit around 1.37, towards the bottom end of the range we have seen cable trading over the last 8 months.
Euro
The news across Europe has been a change from the top within Germany. Germany has the fourth-largest economy in the world and the largest in Europe meaning change there can impact the wider Eurozone’s direction.
It was announced yesterday that the Social Democrats narrowly beat Angela Merkel’s party. They did not, however, gain a majority meaning that a coalition government will need to be made. The SPD won 25.9% against 24.1% from the centre-block party. This process many are already expected to be a long period meaning political impacts on the strength of the Euro could well be seen over the coming weeks.
So far it has been a weakening of the euro as a result of political instability.
Tomorrow morning, we have the Industrial and Consumer confidence numbers. These are expected to show a fall compared to last month which could in turn weaken the Euro further.
Elsewhere, the Central Bank of Norway raised their interest rates from 0% to 0.25%, this is the first interest rate rise in a major developed economy and could well set a tone.
GBPEUR rates now sit towards a 6-week high for Euro buyers!
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