The pound was higher against the US dollar on Monday amid little economic data releases and thin trading. The US dollar fell after Friday’s dovish speech by Fed Chair Jerome Powell. Jerome Powell indicated Friday that the central bank will possibly begin tapering before the end of the year, but a rate hike was not imminent as there is still “much ground to cover” before the economy reaches full employment. At the same time, there could be some risk ahead for the pound, due to renewed Brexit concerns.

Jackson Hole symposium

In his much-anticipated speech at the Jackson Hole symposium, Fed Chair Jerome Powel said that the central bank could start tapering its stimulus programme by the end of the year, easing market fears for a quicker withdrawal of its funding.

The Fed took its benchmark rate down to almost zero and accelerated its quantitative easing programme in an attempt to resuscitate the economy during the early days of the Covid-19 pandemic.

The question of when the Fed will begin to tighten its programme has been the main concern for markets for some time now, and it might remain as Powell avoided to give any definite answers. The Fed is aware that any specific answers could seriously impact the global economy, this is why it has chosen to postpone any reduction of its funding.

“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” Powell said during the summit. He added that inflation is close to the Fed’s 2% target rate, but “we have much ground to cover to reach maximum employment.” Markets reacted positively to Powell’s comments, with major stock indexes rising higher.  

Fed Vice Chairman Richard Clarida also agreed with Powell’s remarks. He explained that tapering could be possible by the end of this year, as long as labour gains continue: “I think that if that materialises, then I would support commencing a reduction in the pace of our purchases later this year,” Clarida noted.

The Fed said that “substantial further progress” will need to be seen before tightening policy. Powell said that in terms of inflation the “test has been met” and that there “has also been clear progress toward maximum employment.” He said that the Fed agreed at the July Federal Open Market Committee meeting that “it could be appropriate to start reducing the pace of asset purchases this year.”

Powell defended the Fed’s policy and decision not to make an “ill-timed policy move” and stated: “Today, with substantial slack remaining in the labour market and the pandemic continuing, such a mistake could be particularly harmful. We know that extended periods of unemployment can mean lasting harm to workers and to the productive capacity of the economy.” Additionally, he stressed that the delta variant “presents a near-term risk” but “the prospects are good for continued progress toward maximum employment.”

Renewed Brexit concerns

The UK government supply chain crisis could have a significant impact on Christmas and create further food shortages over the next year too. Iceland, Nandos, KFC, McDonald’s, and Tesco are among the many businesses that are reporting stock issues as a result of lorry driver shortage due to Brexit. Restaurant chains Nandos and KFC are facing chicken shortages, McDonald’s is finding it difficult to make milkshakes and Iceland is running out of bread and soft drinks. The problem has become noticeable over the summer when social media was flooded with images of empty shelves.

The disruption was then largely blamed on the “”, but businesses have for a long time now warned of a chronic shortage of lorry drivers due to Brexit. Speaking to BBC Radio 4’s Today programme, Iceland managing director Richard Walker said the lack of lorry drivers “is impacting the food supply chain on a daily basis.” “We’ve had deliveries cancelled for the first time since the pandemic began, about 30-40 deliveries a day,” he said.

British Poultry Council chief executive Richard Griffiths said last week that “When you don’t have people, you have a problem - and this is something we are seeing across the whole supply chain. The labour crisis is a Brexit issue,” he said.

Nick Allen of the British Meat Processors Association warned that such shortages will impact on Christmas staples: “We are cutting back and prioritising lines and cutting out on things, so there just won’t be the totals of Christmas favourites like we are used to.”

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