Exchange rates lost for direction with a lack of fresh data

By Lauren Buckner

There is much to be celebrated in the UK as everyday life returns to ever more levels of normality with children returning to school and office workers once again filling their workplace. Travel, although a little challenging for some of our readers’ more popular destinations such as Spain, France and Portugal is back on the cards – and it is clear to see that the sky is once again fuller with planes and more and more people are out viewing and buying their dream home abroad. The Pound unfortunately seems to have lost the memo and has moved to the lower end of the recent trading range in the last few days, making it easy to forget that these rates are still some of the best to purchase Euros that we have seen over the past 18 months.

MPs will vote later today on Boris Johnson’s controversial plans to increase National Insurance payments designed to raise over £36billion over three years in an attempt to improve social care in the UK across the NHS and beyond,  as the UK government begin to clawback their borrowing levels (the highest on record during peacetime) as a result of spending levels on furlough, the NHS and covid testing to name a few in their response to the Covid pandemic.

This hike in National Insurance represents the highest tax increase in over 4 decades in the UK, and breaks a manifesto promise by the Conservative party which could threaten their stronghold on UK politics. This results in some uncertainty around governance in the UK backed up by yet another attempt by Nicola Sturgeon to poll for Scottish Independence.

In the background to this rumours continue to circulate of a contingency ‘firebreak’ lockdown being prepared by the government for October – in an extension to the school half-term holiday – as the i newspaper reported earlier this week. This has been strongly denied by the Department for Education but is no doubt a concern for us all in the UK, and could be partly to blame for the slight weakness seen in the Pound. Health Secretary Sajid Javid however has pointed out that four out of every five people in the UK are now fully vaccinated against Covid, and this should stem any sudden spikes in covid rates caused by the return to school. It is still open for debate whether we will take the more European approach of vaccinating healthy 12-15 year olds here in the UK in an attempt to prevent schools becoming a hotbed of infection.

Meanwhile in the EU infection rates continue to drop as vaccination rates equal or surpass the UK leading to only 11 cases of covid per 100,000 people in comparison to 53 in 100,000 in the UK over the past week. This sweep of optimism is good news for the EU economy ahead of this weeks main event tomorrow; The European Central Bank (ECB) meeting.

Following on from their record breaking pandemic emergency purchase programme (PEPP) of €1.85tn it is expected that we will get an idea of how the ECB will start to unwind this stimulus package of aggressive bond-buying. This has shielded much of the financial system from the effects of covid (a mild illness as opposed to hospitalisation, much like a vaccine) as the EU economy appears to have bounced back to life. Amid concerns of rising inflation and rumours of an employment shortage across many pockets of the EU it is clear that some tapering of this financial aid is required, and that Christine Lagarde’s policy of “go big or go home” needs updating. The impact of a reduction in stimulus from the ECB would be expected to strengthen the Euro as it reflects the fact that the economy is beginning to once again find its own feet following on from the challenges presented by Covid.

As ever, currency markets are impossible to predict. Our expert team are on hand to help you navigate this uncertainty and can offer contract options which allow you to fix rates in advance and reduce the impact of adverse rate movements to you. Please get in touch to make us aware of any upcoming requirements and we will be happy to help.