Currency Note

Pound weaker as PM announces national lockdown

By Christopher Nye January 5th, 2021

The pound is slightly weaker this morning after the Prime Minister announced yesterday that there would be another national lockdown in England. This has increased speculation that the Bank of England will cut interest rates at their next monetary policy meeting, which would bring rates into negative territory.

The Georgia ‘run-off’ elections begin in the US today, which will determine if the Senate is controlled by Democrats or Republicans. The outcome will also indicate how much legislative power Biden has when he takes office on January 20.

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GBP: Could the Bank of England cut rates?

The pound has weakened slightly against the euro and the dollar after the Prime Minister announced yesterday that there would be another national lockdown. The lockdown will last until mid-February with schools and non-essential shops shutting in England. Scotland also announced that they will enter a period of lockdown.

This has increased speculation that the Bank of England could cut interest rates at their next monetary policy meeting at the beginning of February. Officials have, so far, refrained from taking rates into negative territory.

Data released yesterday revealed that the UK manufacturing grew at its fastest pace since 2017 in December. This was supported by rising new orders as clients brought forward orders to avoid potential disruption caused by the end of the Brexit transition period.

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EUR: Strong manufacturing data for the Eurozone

The euro is stronger against the dollar this morning, as the dollar weakened ahead of the Georgia Senate vote, which begins today.

Data released yesterday shows that manufacturing in the Eurozone grew at its fastest pace since May 2018 in December. New orders rose for the sixth month in a row and new export orders increased to a greater extent than in November. Confidence about the coming 12 months improved to the highest level in nearly three years on hopes that operating conditions would be near to normal by the end of 2021.

This morning, retail sales data for Germany shows that sales surged 1.9% month-on-month in November, before the country went into lockdown.

USD: Georgia ‘run-offs’ today

The dollar is still weak this morning but has found some support as a safe-haven currency due to uncertainty over the Georgia Senate elections.

The ‘run-offs’ will take place later today and will determine whether the Senate has a Republican or Democratic majority. This could influence economic policies that are introduced by Joe Biden when he takes up the Presidency on January 20. The polls suggest that the race is very tight.

Like the UK and the Eurozone, the US saw strong growth in its manufacturing sector in December. It was the strongest growth in factory activity since September of 2014 as the economy continues to recover from the coronavirus pandemic.

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