By Lauren Buckner
The Pound remains on the back foot as we start this week following last week’s fall from grace. The Bank of England failed to raise interest rates at their meeting last Thursday which shocked financial markets and caused the Pound to lose value; it opens the week at a six week low versus both the Euro and the USD.
It had been widely expected that the Bank of England would begin a series of rate hikes at their November meeting which would see the base rate increased by over 1pc between now and late 2022 in an effort to control inflation in the UK which currently sits at 3.1% and is predicted to top 5% by next April. Although they point to rate rises “in coming months” the monetary policy committee felt that the economic impact of the end of furlough is yet to filter through, and taking a cautious approach to rate rises was decided upon.
Trading back in the midst of a recent six month range against the Euro, the pound is still over 8 cents higher than it started the year, a great position for our euro buyers. Brexit pressures continue to mount with most of the weekend’s press talk about the UKs intention to trigger Article 16. The importance of Article 16 relates to the Northern Ireland protocol and the fact that Northern Ireland remain in the EU single goods market in order to prevent a hard border between Southern and Northern Ireland. However, goods arriving into Northern Ireland from the rest of the UK are now subject to checks and controls and have created an ‘Irish Sea Border’ within the United Kingdom. The series of safeguards agreed around the protocol allow Article 16 to be triggered if the protocol leads to “economic, societal or environmental difficulties”. The UK believe that the safeguard limits have been met but the EU believe that we are simply looking for cause to renegotiate the Brexit deal of which they have no appetite to entertain.
Boris Johnson’s post-Brexit trade deals also came under fire as the University of Surrey ‘UK Trade Policy Observatory’ value the new trade deals at just £3-£7 per person while the Office for Budget Responsibility point to a Brexit loss of over £1250 per person over the coming years, is now the time to be playing pressure games with the EU?
The United States has reopened its borders this morning following 20 months of closure to UK and Irish citizens and represents a huge step forward in international travel following the Covid pandemic. The USD also continues a recent boost following Friday’s non-farms payrolls which revealed 513,000 new jobs were created in the States during October and unemployment fell to 4.6%.
As we head towards the end of the Year it is clear that UK plc is back in full swing and there is a lot which could impact exchange rates in the coming weeks. Please keep in touch with your Account manager for up to date news on the market.
The week ahead
Tuesday
UK retail Sales
EU ZEW Economic sentiment survey
US Producer Price Index
Wednesday
EU Consumer Price Index
US Consumer Price Index
Thursday
Australian unemployment rate
UK GDP
UK Trade balance
UK Manufacturing production
Friday
EU Industrial Production
US Michigan consumer sentiment index