March Currency Update - Steady Pound & Paris Lockdown

March Currency Update - Steady Pound & Paris Lockdown

Bank of England keep interest rates at historic lows
The Bank of England yesterday confirmed that they will once again be holding interest rates at their historic record low. This should come as little surprise owing to global interest rates in the developed world all close to historic lows.

The UK economy once again shrank by 2.9% in January which coincided with the third lockdown.  However, according to some analysts this fall was not as bad as previously expected. This has helped give the Pound some further support against a number of major currencies.

Bank of England governor Andrew Bailey has been fairly upbeat about the UK’s recovery potential and was quoted last week as saying he expects the economy to ‘get back at the end of this year to where it was at the end of 2019.’

The central bank has also kept its QE programme at £895bn with another £150bn planned by the end of 2021.  The Office for Budget Responsibility has also downgraded its unemployment expectations to 6.5% compared to the estimate of 11.9% predicted last July.

The Pound has seen the benefit of the extraordinarily successful vaccine programme whereby over 40% of all UK adults have now had their first vaccination.  One of the contributing factor which we think has been overlooked as to why the Pound has continued its gains this year is that the trauma of a no deal Brexit has now become a distant memory.

The Eurozone struggles with speed of vaccination
The Euro is continuing to struggle vs Sterling and the US Dollar as the issue of vaccine take up and supply is causing problems across the continent.

Many countries have suspended the use of the Astra Zeneca vaccine and appear to have blamed the UK for lack of support in terms of sharing out the doses and today there’s been new advice from France, it’s quite a confusing situation.

The single currency is struggling to make much progress vs the Pound and the US Dollar recently and the slow speed of vaccinations means that the removal of lockdown could arguably take a lot longer on the continent than that being planned for the UK’s roadmap.

With Italy having imposed further restrictions earlier this week owing to increasing infection rates nine regions in the country are under the most tight restrictions. Likewise France is starting a 1 month lockdown for the greater Paris area (Ile de France), in total 16 departments affecting more than 20 million people, including the Seine Maritime and Eure in Normandy, Hauts de France and Alpes Maritimes in the south.

Yesterday (18th march 2021), executive director of European Medicines Agency (EMA) has claimed that the vaccine is’ safe and effective.’ The comments were made in order to try and tempt more Europeans to take the vaccine when offered which has so far been very slow.

Combined with the suspension by many European governments as to the risk of the Oxford vaccine it should come as little surprise that those living in Europe may feel a sense of heightened risk when presented with the vaccine.

ECB president Christine Lagarde has suggested that the European Central Bank may need to wait for some time before they see the impact of the recent additional monetary stimulus in the form of QE. A total of EUR750bn was allocated last summer to be used to help the recovery of the Eurozone. Lagarde went on to say ‘while we believe that 2021 will be the year of recovery, we don't see it happening until the second half of 2021.’ This is another reason why the Euro has continued to remain under pressure.

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