The pound has potential to rise further as more positive news is expected, while some risks remain relating to concerns about the pandemic and a rising euro. The latest Lloyds business barometer for the month of May rose to a three-year high, while Gertjan Vlieghe, an outgoing Monetary Policy Committee member at the Bank of England (BoE), said on Thursday that interest rates could rise by the middle of next year. At the same time, with a thin economic calendar the pound could fluctuate unpredictably in what is expected to be a volatile week ahead. also mean that the pound

Rising Renmbibi exchange rates

The Pound-to-Euro exchange rate could be volatile with the potential to rise higher if the recent boost in Renminbi exchange rates leads the Peoples’ Bank of China (PBoC) to buy non-Dollar currencies in a bid to ward off dollar appreciation pressures. China’s exchange rates rose after a decision to allow USD/CNH to fall. The move was the result of concerns regarding rising Dollar-denominated commodity prices and was driven by an attempt to offset the increase through a stronger exchange rate. This eventually resulted in the rise of other Chinese exchange rates that are a macroeconomic hazard for the PBoC, as research analysts have noted. The fall of the USD/CNH supported the Renminbi against all China Foreign Exchange Trade System (CFETS) currencies.

The rise of Renminbi is problematic for the PBoC because it results in cheaper imported goods and could drive the bank to buy other currencies in an attempt to reduce its other exchange rates. In general, a prolonged period of RMB appreciation and USD weakness could become an issue for policymakers and the PBoC could use further administrative tools to control this.

The currency pair could also be further affected by the BoE Governor Andrew Bailey’s speech on Tuesday on the subject of "Building a Finance System Fit for a Clean, Resilient and Just Future."

Euro appreciation could drive pound lower

Analysts have explained that the euro could be the main currency in Europe to benefit from the PBoC’s potential attempt to manage extreme currency appreciation. The pound-to-euro exchange rate has performed well, However, if the euro rises, this will potentially push the pound to euro rate lower. On Wednesday, when the ECB releases a report on the international role of the euro, the common currency could rise, and this could possibly push the pound lower.

Covid-19

At the moment, the markets might be relatively calm in both the US and the UK, and after Friday's volatile trading, but fears of Covid-19 variants may send sterling down, some analysts are saying. FXStreet’s analyst Yohay Elam stated that “People residing in the UK may enjoy the long weekend at home and in several European countries – but not in France nor Germany, where they are required to quarantine. These restrictions serve as a reminder of the B.1.167.2 variant. Sterling is on the back foot due to these fears.”

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 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.

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 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.

 

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.

The pound strengthened against the euro, due to positive market sentiment as a result of the intense and ongoing vaccination rollout programme. Goldman Sachs has speculated that the pound could even rise further against the euro.

Rishi Sunak’s Budget announcement boosts sentiment

Following the budget announcement, the Wall Street investment bank told its clients to trade in Sterling as the UK economy is expected to grow in the coming months.  UK Chancellor Rishi Sunak’s budget announcement last Wednesday revealed spending and taxation plans that were better than expected. Sunak announced that an additional £65 billion will be provided for spending, grants and tax breaks with the total additional spending and benefits reaching £352 billion. "The UK economy is well-positioned for the coming recovery," Goldman Sachs’ Zach Pandl said. "The support program laid out by the government surprised consensus expectations to the upside, and included a number of economic incentives aimed at medium-term investment." Most economists believe that supporting the economy generously during the covid crisis will help the economy grow stronger faster and avoid any long-term negative effects.  

Vaccination programme also offers support to pound

Goldman Sachs’ economist Pandl also noted that the UK’s vaccination programme has helped the economy. He said: "Solid household and business balance sheets should soon translate into robust growth, as the UK’s strategy of prioritising getting more people vaccinated with a single dose appears to be paying dividends. We are therefore keeping open the short EUR/GBP component of our long GBP/CHF cross trade.”

Britain has outperformed on its vaccination programme, especially when compared to other European countries, with more than 21 million people having received the first dose of a Covid-19 vaccine.

UK business confidence hits 12-month high

The UK’s fast vaccination programme has also had a positive effect on businesses’ confidence. According to the latest Business Trends report from accountancy and business advisory firm BDO LLP, service sector confidence jumped in February to its highest level since the pandemic began.

BDO’s Services Optimism Index rose to 94.13 in February from 86.60 in January, back towards the long-term average of 100. This is the highest reading in 12 months for the survey, which covers a a wide range of industries from retail and hospitality to professional services.

Also, according to polling firm YouGov, British consumer confidence has risen to its highest level since the coronavirus pandemic started, according to polling firm YouGov. YouGov reported that  consumer confidence rose to 105.4, driven by expectations for house prices, business activity, and household finances over 2022.

The governor of the Bank of England, Andrew Bailey, has also expressed optimism about the economy but also cautioned for unrealistic expectations, as life will not return to pre-Covid levels. He noted that there is a “growing sense” of economic optimism building. He said that Covid has hurt demand and supply which some of the structural changes in the last year will not really change.

Bailey said: “The best we can say is that how the output gap develops in the recovery from Covid will depend on the net effect of the two [demand and supply], both of which will need to move by more than in normal recoveries. There is another element to this part of the story which is hard to assess at present, namely to what extent the more structural changes we have seen during the Covid crisis will persist, and what effect they will have on the recovery? In general, however, economists remain optimistic and the pounds recent surge owes a lot to the government’s successful vaccination programme.

 

Are you Transferring Funds Abroad?

If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or 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.

Budget 2021: Pound to Remain Sensitive

Rishi Sunak’s budget has unnerved the pound as investors have been waiting to hear the details. A bullish scenario for the UK currency will be the announcement of more financial support to help recovery, while any attempt to balance the book that will affect growth will hurt the pound.

Main Points: What did Rishi Sunak say?

The chancellor said that he would do “whatever it takes” to help the economy recover from the pandemic as the damage has been great. It is estimated that more than 700,000 people lost their jobs, the economy shrank by 10% and borrowing has been at its highest. Sunak noted: “It’s going to take this country, and the whole world, a long time to recover from this extraordinary situation.”

He has underlined his own and the government’s desire to be clear and transparent about fixing the public finances, and about what plans they have in the future.

Growth

Expectations are for a quick recovery by the middle of next year. However, the economy will still be 3% smaller even in 5 years from now. GDP will grow by 4% this year, and by 7.3% next year. The coronavirus has profoundly affected the economy and Sunak’s comments suggest that tax rises should be expected in the near future.

Furlough

The chancellor said that unemployment will reach 6.5%, which will be much less than originally forecast, with 1.8 million fewer people expected to lose their jobs. The furlough scheme will continue until the end of September. Employees will receive 80% of their wages until the end of the scheme but businesses will have to contribute 10% in July and 20% in August and September. The self-employment income support scheme will also be extended and the £20-a-week uplift in universal credit will be extended for six months.

Grants for Businesses

Sunak announced a £5bn restart grant for businesses and noted that the total direct cash support to businesses has reached £25bn. The Treasury is also starting a new loan scheme with loans ranging between £25,000 and £10m.

Spending

£352bn will be the Covid support package this year and the next and Sunak underlined the amount that was spent to help the economy recover.

Borrowing

Sunak said the budget deficit will be £355bn this year and will continue at high levels with the underlying debt rising indefinitely. He said that due to his actions, borrowing will fall to 4.5% of GDP in 2022-23, then to 3.5% in 2023-24, and 2.9 and 2.8% in the following two years. He added: “It’s going to be the work of many governments over many decades to pay it back, just as it would be irresponsible to withdraw support too soon, it would also be irresponsible to allow our future borrowing and debt to rise unchecked.”

Corporation tax

In April 2023, the rate of corporation tax will go up to 25%. But Sunak explained that this will affect businesses that are making profits of more than £250,000 and will be taxed at the full 25% rate. Companies with profits of less than £50,000 will remain at 19%.

Are you Transferring Funds Abroad?

If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or 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 UK’s successful vaccination rollout programme, along with the BoE’s decision not to lower interest rates, have boosted market sentiment about the UK’s speedy economic recovery and pushed the pound higher. The pound is trading almost close to a nine-month high against the euro, and at a 33-month high against the dollar. It is almost getting closer to its highest levels in over three years.

Rabobank’s Jane Foley said: “GBP bulls have been flexing their muscles since the start of the year based on relief about the EU/UK trade deal and on hopes that the relatively rapid vaccine roll-out programme will lead to a fairly fast economic recovery this year.”

Weaker dollar

The pound’s strength is a result of it capitalising on the US dollar’s losses. The prospect of a major new US stimulus package has weakened the dollar, which continued to fall lower after last week’s disappointing US payrolls report. The wider increased confidence has turned investors away from the safe haven dollar and towards riskier assets.

JP Morgan explained that "The broader USD continues to trade with a much softer tone, drivers seem to be the relentless CNH bid into Chinese New Year and the fact that US yields backed aggressively off key levels and have now calmed down." According to JPMorgan, the USD selling by Chinese traders has also push the dollar lower, a move that is highlighting the importance of the Chinese Yuan in broader market movements.

The past three days’ weakness of the dollar shows that the recent dollar rally has come to an end and that the trend of depreciation has come back into play. JP Morgan said: "We added to our modest sterling longs yesterday via GBP/USD and look for this move to keep going at least until the end of the week (Chinese New Year on Friday).”

Quick vaccinations and market optimism

The UK economy might experience its troubles, but the swift pace of vaccinations suggests that economic recovery will be stronger and faster. The vaccination programme will soon impact health outcomes and boost the Bank of England’s positive outlook. If the Bank shows further optimism and investors are upbeat about economic prospects, then the pound will rise higher.

The general positive market sentiment has helped the pound, as it has become linked to risk appetite during the crisis.

With downside risks for Sterling expected and priced in, analysts see further potential for the pound as the vaccination rollout continues strong. As NatWest Markets analysts said, a "quicker pace of vaccine roll-out will likely lend support to Sterling.” However, they expect any pound increases to be short-lived, as the UK economy struggles post-Brexit.

The Bank of England has said that a strong economic rebound is possible once the lockdown restrictions are lifted and consumers start spending again.

Are you Transferring Funds Abroad?

If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or 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 possibility of the Bank of England pushing interest rates into negative territory has been hinted at by a member of the BoE’s Monetary Policy Committee. If interest rates go lower, it is expected that the pound will be negatively impacted in the next few months. The decision to use negative interest rates is considered by the bank as positive in regard to offering further support to a struggling economy.

MPC member Silvana Tenreyro said in an online speech that negative interest rates will boost UK growth and inflation. "Cutting Bank Rate to its record low of 0.1% has helped loosen lending conditions relative to the counterfactual (of no policy change), and I believe further cuts would continue to provide stimulus," Tenreyro noted. Tenreyro said the Bank of England has been in contact with financial services firms discussing the potential impact of negative interest rates. She said: "Once the Bank is satisfied that negative rates are feasible, then the MPC would face a separate decision over whether they are the optimal tool to use to meet the inflation target given circumstances at the time."

How has the pound performed in 2021?

The pound has not enjoyed a good start to the new year, as it dropped against the euro and the dollar. The fact that the UK and EU reached an agreement on Christmas Eve has not made the situation better either, despite the hopes of some economists. Additionally, they are increasing concerns about the economy due to the stricter lockdowns. This has raised expectations of a further interest rate cut by the BoE.

The possibility of lower interest rates will also make UK money markets less attractive, turning investors away from the pound and towards other investments.

What do analysts and traders say?

Analysts expect that the upcoming Bank of England meeting on 4th February will garner a lot of attention, and as we get closer to it there will be growing speculation on the possibility of an interest rate cut.  

The pandemic has not helped either, as many economists believe that it has dampened sentiment towards Sterling and resulted in concerns about a slower economic recovery and a more cautious Bank of England. At the same time, other analysts disagree and do not expect an interest rate cut this February. Robert Wood, UK Economist at Bank of America said: "We do not expect the BoE to cut Bank Rate in February. Banks do not seem ready and some rate setters argue negative rates could be counterproductive when GDP is falling.” If this happens then the pound may rise.

With the pandemic and ongoing vaccinations, it is not yet clear how the UK economy will fair. Nonetheless, the UK government is committed to delivering CovidD-19 vaccines to the most vulnerable categories by mid-February. If everything goes as planned, and people are successfully vaccinated, then the BoE might reassess its plans and reconsider whether cutting interest rates is the best possible solution. If the economy shows signs of recovery, then the pound will respond favourably.

Are you Transferring Funds Abroad?

If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or 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.

With a lot less Brexit uncertainty and projected gains by 2022, the UK economy and the pound are expected to recover. In the short term, and due to lockdown measures, the pound will be weighed down by negative sentiment which will also lead to economic contraction. But economists are positive that following the rollout of vaccines there will be a sharp recovery in economic activity and investor sentiment which could see Sterling rising against major currencies such as the euro and dollar.  

The recent lockdown restrictions to control the spread of a new strain of the coronavirus will slow down the economy and hurt the pound, but a swing in sentiment might also be materialising soon as the market has reached its negativity point against the pound. Kit Juckes, Macro Strategist at Société Générale, has said that things will improve with the new vaccines and positive news about controlling the virus: "If the new lockdown does work, and more so if vaccine deployment does go quickly from here inwards, Sterling could have a good year. In the meantime, it seems clear that a lot of gloom is priced in already.”

England is currently under a strict national lockdown as the government struggles to rein in the rise in infection. On Wednesday, the UK recorded its greatest daily surge in coronavirus-related deaths since 21 April, with a total of 1,041 registered deaths.

Short-term forecasts for the pound

In the first quarter, the UK economy could contract due to further lockdown measures which will slowdown economic recovery. A rebound in economic activity, however, is expected immediately after the lockdown measures are lifted. With more vaccinations, as a 2 million weekly target is set to be successfully completed by the end of January, economists are hopeful that the economy will slowly bounce back. The government has obtained access to 100 million dosages of the Oxford-AstraZeneca vaccine, with tens of millions of vials to be delivered once the MHRA has quality checked them. There are more than 730 vaccination sites across the UK, and more are opening this week to provide access to Covid-19 vaccines to a wider group of people at risk. In this respect, as vaccinations increase, so will market sentiment towards the pound.

"We expect a gradual re-opening from early March onwards, with faster progress of normalisation thereafter as more people are vaccinated and springtime heralds the natural remission of seasonal respiratory viruses,” Kallum Pickering of Berenberg said. Analysts at Berenberg highlighted that the near-term outlook will be “much worse than before” and forecasted a 2% decline in the first quarter of the current year estimated growth of 6% for the whole of 2021. Kallum Pickering said that the forecast for the first quarter might be gloomy, but the second quarter will see “faster catch-up growth” of 9% and the third quarter is forecast to see 4.5% growth than the 2.3% previously.

Growth rebound in the Second Quarter

According to Pickering, the growth rebound in the second quarter of 2021 will be greater than originally estimated with +9% expected, against the 6% growth forecast previously. For the fourth quarter he sees 1.3% forecast versus 0.9% previously. Pickering said: “we now project an 11.5% decline in 2020 followed by gains of 6.0% in 2021 and a 6.5% gain in 2022 (previously -11.6%, 7.3% and 4.9%, respectively). Despite the near-term hit, the UK medium-term outlook remains positive. With much less Brexit uncertainty and strong gains in global demand ahead, UK real GDP can still recover to its pre-pandemic level by the end of 2022 as previously expected.”

Are you Transferring Funds Abroad?

If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or 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.