Tension ahead

As we approach the end of the first quarter of 2021, it’s a good time to reflect on how Brexit is playing out and our fight against Covid-19. Broadly speaking, the UK and EU have not made much progress patching up their differences following the UK's departure from the bloc. In fact, disparity in vaccination efforts between the UK and the continent have only enflamed tempers and hardened all negotiating positions.

As of this morning, Bloomberg reported that over 45% of the UK population have received their first dose of a coronavirus vaccine, followed closely by the much larger US at 38%. However, the EU is trailing behind with only 12% of the blocs population having received their first jab. The disparity in vaccination efforts is due to several factors, such as supply constraints and differing opinions on the vaccine’s safety. The UK’s faster-off-the-block approval of vaccines in early December 2020 allowed them to place orders for doses ahead of other nations. 

Once you take into account that EU population is roughly six-seven times the UK population, it stands to reason that a smaller supply will naturally mean fewer people currently vaccinated as a percentage of the population. It doesn’t help that several EU member states unilaterally stopped administering the AstraZeneca vaccine due to blood clot concerns, although these have now been disproved. What makes the situation more perilous is that the US, in the process of disproving blood clot concerns, will be submitting their findings to the FDA for emergency approval in a few week’s time. This means the EU will be competing for an even smaller share of AstraZeneca’s supply.

Bottom line: Boris Johnson has been surprisingly restrained in his response to EU threats to restrict vaccine exports to the UK. It seems the further behind the EU gets with their vaccination programme the more forceful their response to the UK’s. Just this morning, the EU has announced it may set up a discussion forum on financial services, allowing the two sides a space to discuss any disagreements. The EU’s strident approach to dealing with unresolved Brexit issues, such as financial equivalence, indicate that only three months into our new arrangement, there are bumps in the road ahead. 

 

The week ahead

GBP

The UK’s vaccination campaign beat record numbers this weekend, with 840,000 jabs administered on Saturday, taking the overall figure to just shy of 30 million. This performance has buoyed Cable, with the pair rising around 4.5% since the start of 2021. On Thursday, the Bank of England expressed some cautious optimism on the UK’s economic prospects and played down talk of tapering monetary policy. The country seems on track to begin the phased re-opening of the economy on 12th April, although the news of vaccine supply shortages has created some tension as the date fast approaches.

  • The UK’s Unemployment Rate is due on Tuesday, forecast at 5.2% for January.
  • Bank of England Governor Andrew Bailey is set to speak on Tuesday and Thursday. 
  • CPI y/y will be released on Wednesday and is expected to read 0.8% for February vs 0.7% in January.
  • Flash Manufacturing and Services PMI’s are forecast at 55.0 and 50.7 vs 55.1 and 49.5 previously.
  • Retail Sales m/m are forecast at 2.2% for February vs -8.2% in January.

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EUR

After rising to highs of €1.1980, comments from the President of the European Central Bank Christine Lagarde helped the Euro finish the week around the €1.1900 level against the Dollar. This came after warnings that the Eurozone is likely to contract in the first quarter of 2021. A number of EU countries have tightened their coronavirus restrictions over the last few days as a result of a spike in infections. It’s forecast that every month these tightened restrictions remain in place, preventing the re-opening of the economy, GDP growth for 2021 could reduce by 0.3%. The sluggish coronavirus vaccine rollout is also hampering the EU’s efforts to identify a clear path out of the restrictions.  

  • German Flash Manufacturing and Services PMI are scheduled for Wednesday, forecast at 60.8 and 46.4 vs 60.7 and 45.7 previously.
  • French Flash Manufacturing and Services PMI look set to read 56.4 and 45.5 vs 56.1 and 45.6 last month.
  • ECB President Lagarde is due to speak on Wednesday and Thursday. 
  • The EU Economic Summit will take place on Friday.

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USD

Last week, the Federal Reserve left monetary policy unchanged while upgrading 2021 GDP forecasts to 6.5%. Fed Chairman Jerome Powell remained unflappable regarding the current climate surrounding bond yields, as the US 10-year treasury yield reached 1.75% last week. The US looks on track to meet 100 million vaccinations by President Biden’s 58th day in office, exceeding the pledge made at the start of his presidential term of 100 million vaccinations in 100 days. As the vaccination programme looks set to improve from here, with three vaccines now approved for use, the US looks in a similar position to the UK as the unwinding of restrictions takes place and a shift to normality later in the year looks probable.   

  • Federal Reserve Chairman Jerome Powell speaks/testifies on Monday through to Wednesday.
  • A number of FOMC members are due to speak throughout the week.
  • Flash Manufacturing and Services PMI are due on Wednesday forecast at 59.6 and 60.1.
  • Crude Oil Inventories will be released on Wednesday.
  • Final GDP q/q is forecast at 4.1% for Q4 of 2020.  

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