In a week which saw public sector net borrowing in the UK hit its highest level since World War Two, GBP unsurprisingly had an underwhelming few days across most majors. Is the positivity created by a successful vaccination rollout beginning to fade and is it a sign of things to come?
Last week was generally light on major economic data, which can always make market movements hard to predict. On the whole this led to a weaker few days for sterling versus the Euro and Dollar but holding station against some of the commodity currencies such as the Australian and Canadian Dollars.
GBP started the week with a combination of good unemployment data and a slight drop in inflation. Unemployment has been under scrutiny of late, but the furlough scheme still seems to be supporting UK jobs for now, as the rate fell slightly to 4.9% for February’s figures. The number of people claiming benefits rose but by less than expected, helping to support sterling early in the week. Inflation is becoming a major focus for most central banks, so a slight drop in the March figure is perhaps a better sign, but this may not necessarily remain the case with the gradual unlocking of the UK economy leading to a likely increase in household spending.
As mentioned in my introduction, the sheer scale of the support measures in place to help the UK economy became eye-wateringly apparent this week as public sector net borrowing figures were released. Government borrowing (the differential between spending & tax income) soared to £303.1bn in the year ending March 2021, a rise of circa £250bn on the previous year’s figures. There had been concerns that this figure could have been as high as £400bn, so in some senses the huge number could be defined as “a relief”. This equates to 14.5% of GDP and is the highest deficit since the second world war.
The Australian Dollar took a boost in the second half of the week as Retail Sales data beat expectations. Given the new “Trans-Tasman bubble” allowing quarantine-free travel between Australia & New Zealand, this figure should continue to improve as tourism between the two countries picks up again. A key point of focus will remain diplomatic relations between Australia & China, which have been rocky at best recently.
The first of two major central bank meetings last week was over in Canada, with no change in their interest rate. However, the Bank of Canada were one of the first major central banks to begin easing economic stimulus or tapering as it is known. The suggestion of an interest rate hike as early as next year was a bold statement, but saw CAD move favourably against sterling. Could we see other central banks following their lead?
Not at the European Central Bank for now, that is for certain. Europe seems to be facing a third wave of coronavirus cases, with an assortment of different lockdowns across the bloc over recent weeks. With (very) little action or substance from last week’s meeting, all eyes will be on the next time the committee gets together on 10th June, for an announcement regarding the tapering of their own economic stimulus. The Euro moved favourably in advance of the meeting but slipped back a little afterwards, as shown in last week’s chart below:
Over in the US, President Biden held the virtual World Earth Day, hosting 40 world leaders as they all seemingly tried to out-do each other on how they are tackling climate change. Boris Johnson continued to make headlines for all the wrong reasons, after stating he didn’t want to implement any “expensive, bunny hugging climate policies”.
Joe Biden was also in the spotlight on Friday with his proposed tax hikes for wealthy Americans, with the focus aimed heavily at those earning over $1m, almost doubling their tax rates. This is to fund his soon to be revealed financial package for childcare and education, and reverses some of the 2017 cuts made by Donald Trump. US stock markets wobbled slightly as a result. GBP-USD movements last week can be seen in the chart below:
Rounding off the week, on Friday we had an assortment of PMI data for March for some of the major Eurozone countries, the UK and the US. All figures were broadly positive as recoveries slowly continue to move in the right direction, albeit at various degrees of pace.
For the final week of April, most of the action comes in the second half in terms of major market events. The latest Federal Reserve meeting at 7pm UK time on Wednesday will give further clues as to any tapering of their own in the US. It feels like Jay Powell & co are getting closer and closer to taking action, but our general expectation is another game of wait and see, before any decisions are made.
The US also releases advance GDP figures for Q1 on Thursday, with 6.5% growth predicted. This being the earliest indication for Q1 GDP, expect a move if we see an improvement on that number.
Friday sees a raft of Eurozone data releases, with the inflation estimate being the major one. The recovery in Europe continues to look wobbly, but last week saw gains against both the Dollar and sterling throughout the week. GBP has had an excellent run during the first quarter and initial part of April, but has it now fallen out of favour with investors as the boost from the vaccination programme runs out of steam?
Away from FX news (but likely to have an impact) next week sees earnings data from some major global players. Releases from Tesla, BP, Microsoft, Apple, Facebook, Lloyds, Sainsbury’s, Amazon, NatWest, Shell, Unilever, AstraZeneca & Barclays all land this week. That should make up for the light week of economic data!
Despite seeing drops from sterling last week, it wasn’t all one-way traffic, so if you do have exchanges coming up you wish to discuss, please do reach out to the team. If an opportunity arises where the exchange rate moves favourably for you, then we can reach out to make the most of the movement. It pays to keep us up to date, so we can work together on the best approach for your conversions.
Advanced Warning: Next Monday 3rd of May is a UK Bank Holiday, so the Aston offices will be closed. For this week though we will be here all week and happy to discuss any queries or requirements as always!