22nd January 2021
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Currency Update - UK/Sterling/GBP Continues to RiseIt’s been another frantic week for financial markets and economists around the Globe; all monitoring new travel restrictions, vaccinations roll outs level, the new emerging variants, the emerging infection rates in China, the first effects of Brexit on the haulage industry and their clients, while we waiting to hear about how the retail sector performed in 2020.
More over, this week has been an historical moment for the world, the wider economy and climates change, with the inauguration of President Biden. Already a raft of executive orders have been signed as part of his ’wartime' Covid plan, and has announced rejoining the WHO and the Paris climate reduction treaty. What a week indeed, here’s how this translates to the sterling, dollar and euro currencies.
GBP - British Pound Sterling Overview
During yesterdays day of trading Sterling rose to reach it highest level against the Euro in eight months peaking at a level of 1.132 on the interbank. Sterling’s value has been steadily increasing since the start of the year and initially broke the 1.13 level during Wednesday’s day of trading. The pound gave up some gains towards the end of the day but was holding a level of 1.129 at the time of writing.
Sterling has steadily gained ground since reports broke of significant progress in trade talks between Brussels and the UK at the end of last year. The subsequent Brexit deal, announced on Christmas Eve, helped allay fears of an abrupt and disorderly end to the UK’s relationship with its European partners.
Charles Diebel, head of fixed income at Mediolanum Asset Management, said the recovery in the currency was “a function of avoiding the worst effects for a hard Brexit combined with a very aggressive Covid-19 vaccine plan”. He added, the speedy rollout of Covid jabs “hopefully means the UK recovers at a faster pace, once immunity is established, and thereby the chances of an economic recovery accelerating are higher in the UK than in Europe,” Giving a statement in the Commons, Health Secretary Matt Hancock said, “we’re giving nearly 200 vaccinations every minute and the immense infrastructure in place is protecting the vulnerable and giving hope to us all”.
The latest catalyst for Sterling strength came as the Office for National Statistics (ONS) released December’s inflation figures. A month-on-month bump in the consumer price index of 0.6 per cent was slightly more than economists were expecting, and higher than the 0.3 per cent rise reported in November.
Higher inflation makes it less likely that the Bank of England will make further cuts to interest rates that would in turn dent the value of the pound. Sterling jumped against both the Dollar and Euro last week when, Governor of the Bank of England Andrew Bailey said that there were ‘lots of issues’ with cutting interest rates below zero and that such a move would hurt banks.
EUR - Euro Currency Overview
The coronavirus pandemic still poses a serious risk to the euro zone economy as the new year began with stricter social restrictions and national lockdowns in many of the nineteen countries that share the single currency. Germany this week, has extended its national lockdown until the 14thFebruary.
EU leaders have agreed to keep internal borders open but say tighter travel restrictions may be needed. European Commission President Ursula von der Leyen wants extra restrictions for Covid hot spots that would be designated as “dark red” zones. EU leaders have agreed to work on a common vaccination certificate and will decide later whether it can be used for travel.
In France, President Emmanuel Macron says from Sunday 24th January any traveller arriving in the country from within the EU will require a negative PCR test taken at least 72 hours before arrival. Cross border workers and essential travel will be exempt. Meanwhile French health minister Olivier Véran has appealed to people to stop using home-made fabric masks – French health officials recommend medical masks are worn instead. While some Brexit news start to filter through and we learn from Le Figaro that nearly 2,500 jobs and 170 billion euros worth of assets have been relocated to France in 2020, according to François Villeroy de Galhau, the governor of the Banque de France.
European leaders are hoping to accelerate vaccinations in the coming months as a strategy to both contain the spread of the virus and aid states to accelerate their economic recovery. The European Commission has called on member states to accelerate their vaccine rollouts, with the aim of 70% of the adult population across the bloc to be vaccinated by the end of summer. The EU has sealed six vaccine contracts for more than 2 billion doses, enough to vaccinate 380 million people, more than 80% of the bloc’s population.
The European Central Banks (ECB) policy meeting took place yesterday, where the decision was taken to leave interest rates and their stimulus package unchanged. The ECB did state, however that it is ready to update its policies whenever necessary. ECB President Christine Lagarde stated, ‘We continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner.’
The ECB stepped up its massive stimulus program in December to support the economic recovery in the region. Its Pandemic Emergency Purchase Programme was extended to March 2022, totalling 1.85 trillion euros in bond purchases. This allows euro zone governments to get cheaper rates when borrowing from public markets. “Our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by the pandemic,” Lagarde said.
USD - American US Dollar Overview
The dollar fell against a basket of currencies as unemployment in the US continued to rise amid a surge in Covid-19 cases. Yesterday, the labour department reported Jobless claims totalled 900,000 which was slightly below the Dow Jones prediction of 925,000 and lower than the previous weeks total of 926,000.
US stocks however opened higher amid the expectation that the new Biden administration will deliver a speedier vaccine rollout and further pandemic relief. The Democrats took narrow control of the senate on Wednesday to give the party control over both houses of congress, as well as the white house for the first time in over a decade. Mitch Mconnell, former majority leader of the senate has pledged to work together with the new Democrat leader Chuck Schumer and President Biden. Republicans have signalled a willingness to work on Biden’s $1.9 trillion stimulus plan that includes $1,400 direct payments to American adults, increased unemployment insurance and a $15 an hour minimum wage.
However, the Democrats majority in the Senate of 3 means the house is split 50-50 and any obstacles in the passing of Biden’s relief plan could impact the US economies ability to recover and therefore impact the value of the greenback. If you have any upcoming transfers involving the dollar speak to account manager who can keep you up to date with events.
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