Potential Political Shake-Up Causes Concern in Germany
The end of last week saw a three-week high of 1.17 Pound-to-Euro exchange rate Following comments from the Bank of England governor Andrew Bailey. Bailey commented that half of the monetary policy committee believes minimum conditions in order to raise interest rates have now been met, signaling a rise in interest rates is drawing near. However, there are concerns regarding COVID-19 and the possibility of restrictions being reintroduced this winter which could slow the UK’s economic recovery.
On Tuesday evening prime minister Boris Johnson announced the government’s Winter plan to curb ever-growing infection numbers, hospitalizations and to reduce the strain on the NHS. These plans include vaccination boosters, mask mandates, working from home, and lockdowns. Whilst the government remain confident that vaccinations will help reduce serious infection numbers, they will not rule out a lockdown. As we have seen throughout the year the test and trace program along with vaccinations will be the focus in the coming months. In recent weeks, many businesses have faced closures, staff shortages, and lack of stock due to isolation rules and issues with supply chains. The prime minister hopes with a winter plan in place will prevent further closures and keep the economy open. Previous lockdowns have shown consumers seem to spend less and save more which could prevent the economic growth needed to support the Bank of England’s decision to raise interest rates.
This week also saw the release of unemployment figures showing a small improvement since the previous data release. Figures are now at 4.6% for the last 3 months period compared to 4.7% in previous months. Despite showing improvement there is still a way to go before we reach pre-pandemic levels which were 0.6% lower.
On Friday UK retail sales figures are set to be released which could spark volatility within the currency market.
Despite a rocky start for the Euro on Monday morning, the currency seemed to find a stable ground during afternoon trading amid a lack of data from the Eurozone. Trading levels for GBP/EUR during Tuesday’s trading reached 1.174 at its highest point and EUR/USD stayed within the 1.18 range.
Germany’s upcoming general elections have sparked concerns among EUR investors. Chancellor Angela Merkel will be set to step down after 16 years at the forefront of the EU’s largest economy. Olah Scholz is expected to succeed Angela Merkel. During political debates and conferences, he has refused to rule out forming a government with the far-left Die Linke party. Whilst Scholz is deemed a safe option as chancellor, the potential of a coalition with Die Linke brings uncertainty to investors. German inflation figures released last week showed a rise to 3.9%, the highest it has been in 30 years. Despite being the largest economy within the Eurozone, they have struggled to cope with supply shortages amid growing price pressures.
It’s a quiet week for financial data until Friday when Consumer Price Index (CPI) figures will be released. Current predictions see no change in the previous figure of 1.6%. The lack of data coming from The Eurozone gives little to support the currency against its major pairings.
Pound-to-Dollar exchange rates during Tuesday trading reached levels of 1.391 and lows of 1.38. The key driver for market movement for the USD is the release of US monthly Consumer Price Index figures reported at 0.3%. despite the forecast of 0.4%, Also the year-on-year CPI figures were reported at 4%.
As we have seen previously in recent months concerns surrounding the COVID-19 Delta variant has also caused uncertainty with many currencies. US president Joe Biden recently announced new vaccination mandates for 100 million workers. The Department of Labour is developing an emergency standard that will require all companies with more than 100 staff members to ensure their employees are vaccinated or tested weekly. This is only a temporary emergency standard, however, companies who do not follow the standard set, could face fines up to 14 thousand dollars per violation. Biden believes in doing so, this will stop the spread of COVID-19 within the workplace preventing business closures and job losses.
On Thursday of this week, retail sales figures are to be released. Retail sales figures are an indicator of consumer spending, which has the potential to cause movement within the currency market.
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