Currency Note

Sterling close to highest rate for 2021

By Alex Bennett December 30th, 2021

Sterling ends the year on a spectacular high, only around 0.1% off its highest rate for the whole of 2021 and fractionally off its highest rate since the Brexit referendum vote more than five years ago.

The UK’s Covid-19 cases hit 183,000 yesterday (and no doubt many more had more tests been available), but hospitalisations and fatally rates are only now starting to rise above the average for autumn. This is also a global phenomenon, with US cases rising by 465,000 yesterday.

In the US, more than 1,300 flights were cancelled on Tuesday and 900 yesterday as airlines struggled with staff shortages.

Also in the news today, a report from Aviva that found one in for of us plan to retire at 60, in order to enjoy retirement while fit and healthy.

In the business news, there is a positive outlook for the City of London, which in 2021 raised more equity capital for newly listed businesses that at any time since 2007, making it “by a significant margin the number one exchange in Europe”, according to a London Stock Exchange spokesperson.

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GBP: Pound looks to end year on high

Sterling has edged slightly over the €1.19 barrier this morning, while slipping by around 0.25% off the five-week high it achieved against the US dollar yesterday.

Overall, however, while the UK’s financial institutions have been enjoying four days off work (up to yesterday), the pound has strengthened against every major currency over the past week, by between 0.3% and 1.3%, including by 0.57% and 0.58% against the euro and US dollar respectively.

Underpinning the strength of sterling over the past nine months has been vaccinations, an incredible turnaround in the success of the UK versus Covid-19 compared to the disasters of 2020 and early 2021.

The last data release of the year – house prices from the Nationwide Building Society – shows residential property prices rising at 1% in December, well ahead of the expected 0.7% and adding up to 10.4% this year. That’s the fastest rate since 2006.

The data releases start again somewhat sluggishly from Tuesday and Thursday next week, with final readings for PMI.

GBP/USD past year

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EUR: Euro decline continues but Spanish inflation races away

The single currency has experienced an unsteady but marked decline against sterling over the past two weeks, as investors put their faith in the UK’s vaccination programme beating the Eurozone’s against the Omicron variant.

Against the US dollar, a ‘choppy’ month has continued, with a strong rise yesterday followed by an almost as large drop this morning, which leaves EUR/USD where it was before Christmas.

There was very little to excite the markets on the data front yesterday, but we did hear that loans to both households and companies in the eurozone rose slightly ahead of expectations in November.

This morning we’ve had inflation in Spain revealed to be running at 6.7%, well ahead of expectations and a surge from 5.5% last month. Electricity, food and non-alcoholic drinks were the main drivers.

USD: Dollar recovers over course of week

Judging the past week as a whole the US dollar has leapt ahead of most major currencies, apart from the British pound, as Omicron and Delta variants of Covid continue to spread among the global population.

Against the euro, the US dollar has almost recovered yesterday’s losses. Against the pound, there has been a steady strengthening to around 0.2% above yesterday’s close.

Data-wise, the information flow has been barely affected by Christmas, and over the past two days we’ve seen house prices rises start to moderate – although only back to 18.4% from 19.1% last month, according to S&P.

This afternoon we’ll hear the latest Jobless Claims.

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