6 January 2021: Sunak adds more support

Sunak adds more support

6th January: Highlights

  • New lockdown measures to hit Q1 GDP
  • Georgia vote to have long term consequences
  • Euro higher as German retail sales rise

One in fifty has Coronavirus

The spread of Coronavirus in England that has led to a new national lockdown has increased to such an extent that one in fifty is now infected.

With new cases of the virus reaching more than 60k for the first time yesterday, there was little obstruction when the Bill to make regulations law was passed in Parliament last evening.

As the latest restrictions take hold, a further significant fall in economic output is likely. Another recession beckons and Chancellor Rishi Sunak allocated a further four billion pounds in grants to those most affected yesterday.

The official definition of a recession is where two consecutive quarters suffer a contraction of GDP is likely to be fulfilled with Q4 ‘20 and Q1 ‘21 seeing falling growth.

While the Government pins its hope to the two vaccines that are now available for mass distribution, concerns remain about the supply chain. 20% of those over 80 years of age have now received the first injection and the Government has said it expects the four most at risk sectors of society to be immunised by the middle of next month.

This looks to be quite an optimistic target and the Government is sure to be held to account by both Opposition Parties and the media.

With Brexit completed, the spread of the virus has completely overshadowed the UK’s new freedoms, although with economists expecting it to knock around three quarters of one percent of GDP in the short-term, any negative effects will be masked.

The pound is being buffeted by mixed signals. Relief at the completion of Brexit is being more than matched by the economic concern created by the lockdown.

Yesterday, it traded in a band between 1.3642 and 1.3554, closing at 1.3626. Sterling is yet to exhibit any direction for the New Year but the longer the lockdown goes on, the more likely it is that it will begin to weaken as negativity grows.

Considering your next transfer? Log in to compare live quotes today.

Dollar index continues to be driven by risk appetite

In a stark reminder of the Presidential Election two months ago, Georgia returned to the polls yesterday to elect two Representatives following an inconclusive result on November 3rd.

Should both votes result in the two Democrats being elected, the lower House will be controlled by the blue Party, providing incoming President Biden significant power to make the changes he deems necessary.

First on his list are likely to be further support for those most affected by the Pandemic and further stimulus for the economy.

Data released yesterday showed that manufacturing output passed the 60 level in December, well above the previous read of 57.5 and a predicted fall to 56.6.

Biden’s hands-off approach to the spread of the Pandemic is likely to gain traction as State Governors are allowed to put their own plans in place supported both physically and financially by the Federal Government.

With the inauguration now just over two weeks away, the outgoing Administration of Trump and Pence has finally put an end to its disruptive behaviour with Biden to be confirmed by Congress later today. Pence will preside over proceedings but has no power to change the outcome.

Fears over the employment report that will be released on Friday remain although the significant issue of a negative new jobs number has receded.

The most recent estimates place the headline number for NFP at +75k with potential for an upside surprise despite State lockdowns in December. Employment will be another issue that needs to be tackled at a Federal level with Biden likely to add more funding to finance large infrastructure projects.

The dollar index remains under significant pressure. Every rally is met with strong selling interest. Yesterday, the index fell to a low of 89.42, its lowest for 2½ years although the rate of decline has slowed considerably. It closed at 89.47.

Can services improve as much as Manufacturing?

Despite total lockdowns in many Eurozone members, data for the economy is showing relatively strong growth. It may be that the numbers pre-date the lockdowns, but at least on the surface the region looks to be dealing with the spread of the new strain of the virus well.

Infection rates remain well below those in the UK where the new strain was first seen and for now the single currency is receiving a boost as it rallies against a weaker dollar.

With Brexit no longer occupying her time, EU Commission President Ursula von der Leyen is able to devote more time to negotiating a settlement between Brussels on one side and Budapest and Warsaw on the other.

Hungary’s radical Prime Minister Victor Orban is unlikely to back down from what he sees as a fundamental right of self-determination for his country. Meanwhile the budget remains in limbo while the new relief plans become desperately needed.

Von fer Leyen has fought tirelessly for the EU to negotiate a deal with vaccine providers on behalf of all 27 member states. On Saturday after nearly six months of wrangling, a deal was agreed, and vaccinations have begun.

The negotiations had become a symbolic sign of the unity, or lack thereof being demonstrated and even as the deal was signed, Hungary, jumped the gun and began vaccinating healthcare workers two days before the rest of the Union.

The euro remains in an upwards trajectory versus the dollar but has run into major resistance versus Sterling. Against the dollar, it continued its recent rise, yesterday reaching a high of 1.2305, closing at 1.2293. Against Sterling, it continues to trade between 1.1080 and 1.1030 with good support for the pound around 1.1020.

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.”