Currency Note

Sterling rising but Euro ends year the winner

By Christopher Nye December 31st, 2020

The UK-EU Brexit trade deal was signed into law late last night and will take effect from 11pm tonight GMT. It was hailed an immense personal achievement for the Prime Minister by Brexit supporters, and even the Labour leader Kier Starmer predicted that the UK’s “best years are still to come.”

UK Covid infection rates soared to record levels, with daily fatalities approaching 1,000. The strictest Tier 4 restrictions are now in place for 44 million people in England. Fatalities have also reached similar levels in Germany.

In the UK, schools will remain closed for at least two weeks after the official start of term in 2021.

The Oxford-AstraZeneca vaccine was approved for use in the UK, with the roll-out expected to start on Monday, and for the most at-risk parts of the population to be vaccinated within two months.

In the US, President Trump’s plan to send a $2,000 cheque to the poorest in the US in an effort to boost the economy has been rejected by leading Republicans.

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GBP: Sterling’s steady strengthening

The pound hit a new 31-month level against the dollar. Although it has some way to go to beat the USD1.40 highs of early 2018, it is trading at around the highest rates since the referendum of June 2016.

Against the euro, sterling recovered some of the losses of the week yesterday, rising by just over 0.5%.

Sterling’s continued rise against all major currencies was symptomatic of a move towards riskier assets such and stocks and commodities, and is a sign of hope that the UK will emerge from the pandemic faster than other countries, with the approval of the new vaccine.

House prices were revealed to be rising by 7.3% year-on-year, a six-year high, according to the Nationwide Building Society.

There are no data releases today or tomorrow, a Bank Holiday, but a large number on Monday 4 January, including Manufacturing PMI, Bank of England Consumer Credit and mortgage approvals.

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EUR: Euro ends year on high against USD

The single currency reached a 31-month high against USD before falling slightly before the close. Across the year it has risen by more than 10% against the greenback.

It weakened against GBP yesterday, but nevertheless ends of the year around 7% higher than at the start.

The markets shrugged off a momentous week for the European Union, with its second-largest economy and donor leaving the bloc and its largest economy seeing a huge rise in Covid fatality rates. The vaccination programme has begun just as New Year celebrations were cancelled. Many countries can look forward to a resumption of their tourist industries by the Easter holidays.

It has been a quiet week for data releases, but the first working day of the New Year will commence with Markit Manufacturing PMI across the bloc and new car registrations.

USD: Dollar hits new multi-year lows

The dollar continued its falls yesterday – very much the theme of 2020 – reaching new 2¾ year lows against EUR and GBP.

The stimulus package, and in particular the plan to send $2,000 cheques to the poorest Americans, continues to be opposed by Republican leaders.

The value of Bitcoin, the cryptocurrency, rose 4.65% on the day to over $28,000, a symptom of dollar weakness as investors opt for a riskier profile in the face of good news on vaccines.

Today we have unemployment data, with initial jobless claims expected to rise to 833,000.

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