Sterling has fallen against the euro and the US dollar, despite the lack of any clear data that could be responsible for the declines. This is also what makes it difficult to pinpoint what news or events could potentially affect the pound’s performance.  

Analysts have argued that since the UK is no longer at the centre of financial news and data, and as interest has shifted to other currencies such as the euro, the British currency has lost momentum. It has also been noted that markets have priced in all the good news for the pound, so no bigger rises are expected at the moment. The successful vaccination programme and the reopening of the economy has provided support to the pound and the market Many analysts have also said that the weakness in the US dollar has also been partly responsible for some of the recent gains, which also highlights the fact that they are not any clear drivers that will push the pound higher. UK economic data has generally surpassed expectations, but this has not necessarily translated to any obvious additional upward pressure.

Higher Interest rates and Pound

Market expectations for higher interest rates, could also provide support to the pound. But for the market to become confident and positive, the Bank of England will need to show signs that is committed to raising interest rates. However, policymakers have not shown any firm conviction of raising interest rates any time soon. While inflation might be rising, BoE Governor Andrew Bailey believes that inflationary pressures are only temporary. But unless the Bank’s Monetary Policy Committee agrees in its majority that it’s time to raise interest rates, the pound is unlikely to rise unexpectedly. At the moment, the pound will be influenced by global market movements.

Cummings’ Testimony, the Pandemic and Indian variant

Sterling has been the second best performing G10 currency against the US dollar this year, because of investors being positive about the UK economy reopening, following its successful vaccination program. Britain started the third phase of reopening the economy last week, allowing indoor dining in pubs and restaurants. Retail sales data were upbeat as well as surveys of purchasing managers across different industries.

This week’s pound weakness has been partly explained by the lack of data, but also by pandemic concerns and Dominic Cummings’ testimony. Cummings’ testimony on Wednesday has been described as the “Sword of Damocles" and his explosive statements have undermined the government and could potentially keep the pound lower. He has likened the management of government officials during the crisis to "lions" being "led by donkeys". The pound may also be subject to news about the pandemic and the worrying rise of cases. The spread of the Indian variant has also added to pound pressure and these factors have partly kept the pound low, despite dollar weakness.

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The pound has recovered some of its earlier losses, following the release of the UK Consumer Prices Index. Rising in line with market expectations, inflation increased 0.6% month-on-month in April, as the rise in the prices of petrol, gas and electricity pushed the cost of living higher.  

The Office for National Statistics released on Wednesday figures that showed the Consumer Prices Index (CPI) rose by 1.5% in the 12 months to April 2021, making it the highest reading since last March.

The rise in inflation was driven by rising household utility bills, higher motor fuel prices and clothing. The ONS said: “Price movements for household utilities, clothing, and motor fuels are the main reasons for the higher monthly rate this year than a year ago.”

Food prices also rose in April driven by increased prices for chocolate, ice cream, breads and cereals. The ONS noted that: “Food prices rose by 0.9% between March and April 2021 but were little changed between the same two months in 2020. Prices for a variety of bread and cereal items rose this year but fell a year ago, resulting in an upward contribution of 0.04 percentage points. There was a similar upward contribution from across a range of sugar, jam, syrups, chocolate and confectionery items, with standout movements coming from large bars of chocolate and chocolate covered ice-cream bars. Prices for these items rose between March and April 2021 but were being discounted between the same two months in 2020.”

The Bank of England’s target is for inflation is 2% in the medium term, and analysts expect inflation to continue to rise in the next few months, as the economy improves and recovers from the pandemic. A stronger pound will help inflation as the cost of imports will fall.

Will rise in inflation be short-lived?

Ruth Gregory, senior UK economist at Capital Economics, believes that April’s rise in inflation will be short-lived: “There were pockets of inflation in those sectors that are reopening, with clothing inflation bouncing back from -3.5% to +0.5%, as retailers continued to reverse the aggressive discounting during lockdowns, and furniture inflation rising from 4.5% to 5.8%.… But in April, these movements were partially offset by some of the pandemic-induced surges in inflation continuing to fade. Data processing equipment fell further from 5.9% in March to 0.2%. Meanwhile, second-hand car inflation dropped from 1.2% to 0.2%.”

Factory gate inflation rose by 3.9%

The rise in commodity prices, drove UK manufacturers to increase their prices in April. The cost of goods after they leave the factory (factory gate prices) rose 3.9% in the 12 months to April 2021. Producer prices rose 0.4% during the month, something that could eventually affect consumers in the shops. Metal, crude oil and mineral prices also rose affecting manufacturers with higher input prices, which jumped by 9.9% compared to April 2020.

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.

The pound has risen to its highest level against the US dollar in almost three months. With the dollar weakening, Sterling rose to its highest level since 24th February, supported by jobs data that showed a drop in the UK unemployment rate, to 4.8%, and increase in employment. The stronger than expected jobs report and the weaker dollar help boost the pound.

UK Employment Rises

Employment data from the UK showed a rise in employment with 84,000 gaining jobs in April following the reopening of the economy and the loosening of lockdown measures. The labour market is characterised by high-skilled workers furloughed or made redundant pandemic or low-skilled workers unable to gain new employment. Employers began hiring again in March, which helped to reduce unemployment for a third consecutive month. The number of workers seeking employment fell to 1.6 million in the three months to March, compared with 1.7 million in the three months to February, the Office for National Statistics said. The quarterly rate was down to 4.8% from 4.9% in February.

The number of employees on company payrolls continued to rise but remained 772,000 below pre-pandemic levels. The number of job vacancies also continued to rise into April, with most industries showing signs of growth.

Jobless rate to Rise in Autumn

However, ING expect the jobless rate to rise at around 6% in the autumn, as the furlough scheme comes to an end September. James Smith from ING stated: “We can already see signs of a rapid turnaround in the hospitality sector over recent weeks, where online job adverts have returned quickly to pre-virus levels since the reopening road-map was announced.

While this is a ‘flow’ measure and clearly isn’t the same as saying employment has returned to where it was before the pandemic, it does suggest some of the past employment losses we’ve seen over recent months could be quickly reversed over coming months.”

Thomas Pugh of Capital Economics also said that the unemployment rate may rise to around 6.0% by the start of 2022 but should fall eventually: “The unemployment rate may still rise over the rest of this year. But this will probably be due to people re-joining the labour market rather than more people losing their jobs. Of course, this is all dependent on the path of the pandemic, and whether the UK is able to exit the crisis - or if new variants force new restrictions to be imposed.”

Employment Data is welcome news

The jobs data was welcomed by the Minister for Employment Mims Davies MP who said that the report shows how resilient the jobs market has been. He said: “A continued fall in unemployment, a further rise in vacancies, and growth in the employment rate is welcome news as we continue on our roadmap to recovery. While there is more to do to make sure we support jobseekers over the coming months, these figures highlight the resilience of our jobs market and ability for employers to adapt – and through our Plan for Jobs we’re continuing to create new opportunities for people right across the country.”

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.

Sterling rose for a second week against the dollar on Friday, supported by a hawkish Bank of England and a successful vaccination program which has enabled the gradual reopening of businesses.

The Bank has begun tapering asset purchases, while the country is restructuring its vaccine rollout program to help protect more quickly those in areas where a specific variant of the coronavirus, first detected in India, has emerged. The UK has been among the top countries with the fastest vaccination in the world, giving a first shot to almost 70% of the adult population and a second one to 36%, helping to reduce infection rates and deaths.

Near-term gains

The British Pound will likely remain supported against the euro and dollar over the coming weeks according to foreign exchange analysts. The fast vaccine rollout has allowed a sharp economic rebound which has been unprecedented. The positive sentiment around the vaccine rollout is expected to offer further near-term support, analysts have noted. NatWest analysts have said that "While the pace of rollout has been a factor, it’s the UK economy’s underlying sensitivity to the vaccine that has been the most important aspect," they add. "The UK has suffered the greatest hit to GDP of the developed economies during the pandemic and therefore has the most to benefit from the easing of restrictions." The positive vaccine story has already been priced in the current level of the pound and as such analysts do not expect many more gains. The vaccine programme and the latest Scottish elections which have eased anxieties about a second Scottish independence referendum, offered support to the pound, but further gains might be limited.

Upside potential for the pound?

With expectations of a third major unlocking on Monday 17th of May and a final unlocking on 21st of June, analysts see further upside potential for the pound. The recent gains are partly due to the Bank of England's policy meeting on the 6th of May where it was announced that the Bank will be reducing the scale of weekly quantitative easing purchases and raise economic forecasts. As the global economic recovery gathers momentum, strategists at UBS Wealth Management also expect the pound to advance further.

The Bank of England expects the UK economy to return to pre-pandemic levels before the end of 2021. However, NatWest analysts have warned that there are significant risks as we move ahead: “Brexit is weighing on trend growth. Softer productivity trends, deep economic scarring and a deteriorating sustainable current account deficit position are expected to impact negatively.”

Danske Bank has also said that they retain a bullish stance, but they believe there "is no obvious trigger for another sharp move" higher in GBP/EUR near-term. Strategists at Rabobank have also said this week that further advances will be rare, with a new 2021 high possible by year-end. Senior FX Strategist at Rabobank, Jane Foley said: "we continue to expect only a slow drift lower for EUR/GBP.

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.

One of the key challenges that international businesses face is foreign exchange. When businesses transfer funds from one country to another, they have to deal with currency fluctuations and transfer fees. Here are a few things to have in mind when transferring funds overseas.

Foreign exchange challenges

Very often, businesses sending funds abroad are subject to unexpected currency movements in the values of currencies, which can have a significant impact on their funds. If the market moves against you, your funds by the time they are exchanged into the new currency, might worth less. Or vice versa. If the market moves to your favour, your funds might worth much more. But such movements are unpredictable and currency risks can be mitigated with the help of a currency exchange specialist as Universal Partners FX who can suggest ways to move you funds in the best possible way, securing your transfers and offering valuable support.

Too complex? What contract should you choose?

Choosing the right contract can be daunting and the complicated terminology can be discouraging. A spot contract refers to the exchange of currencies at the current (or “spot”) market rate and the two parties agree to exchange their currencies at a predetermined date. Another type of forex contract is called a forex forward contract. In a forward contract, two parties agree to change the currency at a predetermined date and exchange rate. Similar to forward contracts, forex futures contracts are managed on an exchange. Futures contracts and forward contracts are very safe and can be used to hedge against risk. Your dedicated currency specialist can walk you through your various options and help you choose what is best for your business and specific situation. But whether you choose between forwards, futures, or spots, it is important to understand the way the forex market works and gain a competitive edge in forex that can save you a lot of money.

What is Forex?

Forex, or foreign exchange, is the single largest and most liquid market in the world, with over $6 trillion changing hands every day as foreign exchange is essential to both businesses and individuals. From changing money when visiting another country, to banks trading funds with their customers and other banks, forex transactions are a regular and everyday operation. Forex traders or speculators also trade forex for profit and can do so as part of their profession or as a hobby. Whether professionals or beginners, forex traders earn a profit by buying one form of currency when it is priced low, and then selling it when it rises so they can potentially make a profit. International businesses also exchange money when paying their international suppliers.

Why Currencies Fluctuate?

Several factors affect the value of currencies. Money supply by changing interbank borrowing rates or printing more money can affect the value of a currency. Central banks’ decisions, policies and how much money is available in the market can have an important impact on the value of a currency too. The laws of supply and demand can also change the value a currency, since if a currency is appealing, traders would want to buy it, but if no one needs it, it will decrease in value.

Transferring funds?

If your business is making an international bank transfer, it is good to seriously consider a currency exchange company such as Universal Partners FX. Currency transfers with UPFX are usually faster, cheaper and equally secure than any bank. You can easily send funds abroad without any hassle and without too many intermediaries.

If you’re  transferring funds from or to a foreign bank account, our dedicated customer support team or your personal account manager will explain everything you need to know about making a transfer effectively. You can also use our simple and user-friendly online platform to transfer your funds in a fast, secure and affordable way. Get in touch now with Universal Partners FX and find out how you can make the most of your hard-earned money.

With market sentiment strong as the economy is recovering and more people are vaccinated, economists will be looking with great expectations at today’s Bank of England interest rate decision. Despite the current optimism, the bank is not expected to raise interest rates from their current record low of 0.1%.

Will the bank raise its growth forecasts?

The economy has improved: the private sector has experienced fast growth, mortgage lending is at a record, and economists are forecasting that UK GDP will rise at its highest since the 1940s. The FTSE 100 share index hit its highest level in over a year yesterday, with banks, mining and oil companies benefiting from the global economic rebound.

Britain’s services sector has also posted its fastest growth in more than seven years, as the latest Service PMI jumped to 61.0 for April. Companies saw sharp increases in business and consumer spending, new projects and new orders rose at their fastest rate since December 2013. Service providers noted that the easing of Covid-19 restrictions across the UK has helped businesses and growth. Firms also employed more staff and employment growth accelerated to its fastest since October 2015.

Since the economy is doing so well, the BoE is expected to raise its growth forecasts today, in its latest Monetary Policy Report which will also be released on Thursday. Elsa Lignos of RBC has noted that the Bank will predict a smaller increase in unemployment this year: “Significantly, the extension of the government’s furlough scheme, which was announced at the budget, is likely to see the MPC lower its estimate of where it expects unemployment to peak once support is withdraw.”

Will the bank slow its stimulus programme?

At the same time, the Monetary Policy Committee will be considering when to slow its £895bn asset purchase stimulus programme, which is buying up around £4.4bn of government bonds each week. If there are any strong signals that it may do so, then the pound could rise.

Shamik Dhar, chief economist at BNY Mellon Investment Management, said that the “economy looks set to bounce back strongly in the second half, probably at double digit annualized growth rates, returning overall activity to pre-crisis levels this year. Inflationary pressures might build, but will probably be contained by a strong supply response in those industries that have been locked down. The Bank of England (BoE) remains a long way off tightening monetary policy, but could be one of the first central banks to signal it’s thinking about it, possibly in early 2022.” Despite the bright outlook, the economy will not return to pre-Covid levels. He added:

“The economy will return to pre-crisis levels of economic activity quickly, and possibly recover the pre-crisis trend level next year. But the composition of the UK economy has probably changed permanently thanks to the pandemic. While we will see a strong bounce back in ‘close contact’ industries, such as hospitality and travel, this year and next, they may never recover their pre-crisis share of the economy. ‘Remotely-consumed’ goods and services will remain a larger proportion of the economy than they were pre-pandemic.”

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.

 

May is expected to bring some volatility for the pound which can be a good thing for traders of the currency. The first week of May will be an important one for the pound as on the 6th of May, the Bank of England (BoE) will deliver its monetary policy decision and its quarterly Monetary Policy Report. Investors and analysts are also expecting the Scottish election to be a pound-sensitive event as it could result in a majority for pro-independence parties. In the near term, both events could affect the pound and set the tone for currency trading throughout the last month of Spring.

A hawkish tone from the bank could weigh on the pound

Economists will be closely watching the BoE’s upcoming meeting to understand whether the bank will change its quantitative easing programme by reducing its rate of asset purchases.  This is seen as a necessary measure to provide liquidity to the economy, and it will open the path for raising interest rates in the future. For this reason, if the bank decides to make such a move, markets will be pleasantly surprised, as three months ago the bank was seriously considering pushing interest rates into negative territory.

While such a move is welcomed and appropriate since the economy is recovering, it is still too early, and some economists believe that the bank will not be raising interest rates anytime soon. The BoE is more likely to remain cautious, and this might put some pressure for the pound. While the market expects interest rates to remain unchanged, they are not quite sure about the bank’s intention to reduce quantitative easing. For some analysts, there are concerns about the pandemic and unemployment which could rise following the withdrawal of the government’s support.

Scottish elections

Scotland will be voting for the next Holyrood parliament on 6th of May and political commentators say a strong result for pro-independence parties will inevitably lead to another independence referendum. However, financial analysts do not expect the Scottish elections to have a major impact on GBP. Regardless of the result, most experts do not believe this will immediately lead to an imminent vote for independence, as a second independence referendum is probably years away.

As things stand, it is also unlikely that Prime Minister Boris Johnson’s government will grant consent to hold a second referendum.  While who holds the power to allow a vote could ultimately be tested in the courts, at the same time the probability for an imminent referendum is small. A refusal from Boris Johnson could also further strengthen pro-independence sentiment in Scotland. The possibility of a second independence referendum is not going to go away and will play a key role in the next UK-wide general election in 2024.

Are you Transferring Funds Abroad?

If you are a business transferring funds overseas, contacting a currency specialist could save you time and money. Get in touch with Universal Partners FX and their dedicated team to discuss these factors in further detail and be kept up to date with the latest market movements ahead of your currency exchange. If you are paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.