22 March 2021: Bailey to join Powell and Lagarde

Bailey to join Powell and Lagarde

22nd March: Highlights

  • UK vaccination programme to protect from European Third Wave
  • Biden will take wins wherever he can get them
  • New Covid curbs threaten any 2021 recovery

Market doubts that Governor will shed more light on MPC

Bank of England Governor Andrew Bailey, under continued pressure over a scandal that cost thousands their life savings, will speak at a Bank for International Settlements Conference this week that will also be attended by ECB President Christine Lagarde and Fed Chairman Jerome Powell.

Each is likely to be questioned over the most recent meetings of their Monetary Policy Meetings. While Bailey and Powell will have to answer questions about how they will deal with inflation, Lagarde is likely to be asked more fundamental questions about how the Eurozone can expect to recover from the pandemic. Once she has managed to answer the how, she will be pinned down over the when.

Bailey will express concern over rising unemployment figures and cite the end of the Pandemic, as the time for discussion of support for the unemployed and jobseekers.

The figures are unlikely to make pleasant reading from either the Bank or Government although there remains a high level of confidence, among Bank Officials at least, that the economy will recover sooner rather than later although there may well be a few bumps in the road along the way.

Unemployment is likely to rise to 5.2% from 5.1%. There has been a significant reduction in the expected high. That is now likely to reach 6.5%

Bailey still faces questions over his time as Head of the Financial Conduct Authority and his testimony to MP’s in which, it is alleged he misled the Committee concerning the collapse of London Capital and Finance. That is likely to be a story that the media keeps at the front of people’s minds for some time.

Also, this week, data will be released for inflation which is likely to pick up towards 1%.

There is expected to be good news around services activity with a rise to 51 expected, which would mean that expansion has started again. Bailey will speak twice at the Conference on both Tuesday and Thursday. So, it is likely that currency volatility will increase before he speaks.

Last week, the pound had a mixed week versus a volatile dollar. It traded between 1.4001 and 1.3809, closing a shade lower on the week at 1.3874.

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The shackles are off

When you have a boss who wants to both study every proposal you make and then take credit for the ones that succeed, it is like a breath of fresh air when he or she is replaced by someone more malleable.

That is where Jerome Powell finds himself right now. Gone is the continual second guessing and the constant referrals to the Treasury Secretary for confirmation.

Powell may actually make Biden look good as he works to ensure the recovery is set in stone and the stimulus package, which is beginning to take effect, is allowed to blossom.

While fiscal and monetary policy work hand -in-hand, it is the improvement in the number of people receiving their first vaccinations that is driving confidence forwards.

While there is a note of caution still to be found surrounding opening up the economy too soon, the floodgates of growth are about to be opened.

The polarized nature of the current political map in the U.S. shows that Biden’s approval rating has barely changed. In fact, if anything, it has dipped ever so slightly.

Given the chaos that led up to Biden’s inauguration, it goes to show that he will have to be Lincoln, JFK and Reagan rolled into one to find his way onto the most popular Presidents roll of honour.

The economy is certainly set fair and the biggest issue when Jerome Powell speaks this week will be batting away concerns over overheating.

Powell is becoming a very popular Fed Chairman. His gravitas as a Lawyer is matched by his ability to take advice from colleagues and biggest of all (for now), the market trusts him. That will remain until he has to do something that it didn’t see coming.

The dollar has been encouraged by the latest FOMC meeting which took place last week. It has had a few struggles breaking through resistance around 92.20, but is well supported in the mid 91’s.

Last week it closed at 91.95.

This week will see not only Powell’s speech on Tuesday but also data for durable goods orders. They are a good indicator of future inflation. Also, data for Q4 growth will be published. That is expected to be unchanged from the previous release at 4.1%.

PMI data to tell the awful truth

The spread of a third wave of Covid-19 infections across mainland Europe is about to hit the economy hard just as analysts were beginning to accept that a recovery is probable however long it takes.

This week will see the release of the Composite activity index for the entire Eurozone. It considers manufacturing, industrial output, and Services.

As has already been mentioned services data in the UK is set to begin to expand again. It is rare for both to either expand or contract in the same month given the fierce competition, especially in the area of financial services.

There are several stories circulating that the EU Commission is unable to compete in a variety of areas unless it is able to manufacture an unfair advantage for itself.

Most recently, the behaviour of EU Commission President Ursula von der Leyen over a possible shortage of vaccines across Europe in trying to ban exports of the AstraZeneca simply because the EU, true to form, was late in getting its act together, regarding central purchasing was diplomatic, unstatesmanlike, and unworthy.

Brexit and tariffs on the U.S. Aerospace industry are two more such examples.

The most recent lockdowns announced in France and Poland appear to pen-in Germany. The EU’s least affected State commented late last week that is has seen infections rise exponentially recently.

There is little doubt that the setback created by increasing infections will hit the currency. Inflation will be expected to increase reflecting a weakening currency.

Last week, it traded between 1.1989 and 1.1874. It closed at 1.1903. Technically, there is a downwards channel development that would need a weekly close above around 1.2150 to defer.

Have a great day!
About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”