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The pound was down as much as 0.5% against the dollar to $1.2290 after it reached a one-week high of $1.2405 just a day earlier. 

The dollar index was up 0.23%, with the dollar gaining against the Japanese yen after the Bank of Japan chose to keep its monetary policy unchanged. Meanwhile, against the euro, the pound sterling traded flat at 85.46 pence.

On Thursday, the pound had gained 1.4% against the dollar thanks to the Bank of England’s 0.25% interest rate increase. The rise caught some investors by surprise. Many had expected a more aggressive move by the UK’s central bank amid soaring inflation in the country. 

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Soon after government scientists raised the Covid-19 alert level to 4 on a 5-point scale, the Prime Minister announced that the UK’s booster vaccine programme must speed up. 

A fortnight ago I said we would offer every eligible adult a booster by the end of January. Today in light of this Omicron emergency I’m bringing that target forward by a whole month,” the Prime Minister said in a hurriedly arranged national address on Sunday night. “Everyone eligible aged 18 and over in England will have the chance to get their booster before the New Year.”

The pound sterling dropped 0.4% to $1.3225, though remained largely steady against the euro at 85.29 pence. 

Earlier in December, the World Health Organization (WHO) designated Omicron as a “variant of concern”, with scientists currently unsure as to whether or not the Omicron strain is more severe than previous Covid-19 variants. 

The pound slumped as low as $1.3364, trading below a key $1.34 support level. The slump marks sterling's weakest point since December last year when the market was impacted by concerns of a no-deal Brexit.  

According to data from the Office for National Statistics (ONS), the UK economy grew by 1.3% in the three months to the end of September, a figure which trails behind analyst forecasts of 1.5%.  

Shortages of goods and labour had the most substantial impact on growth amid the struggle to meet the sharp rebound in demand. The biggest drivers were from the hospitality, arts and reactions, and health sectors as remaining Covid-19 restrictions were eased. 

This comes following an initial tumble by the pound sterling last week, caused by the Bank of England surprising traders by leaving interest rates unchanged at record lows of 0.1% following a majority vote by the Monetary Policy Committee (MPC). 

On the other hand, expectations that the Federal Reserve will raise interest rates faster than expected has seen the dollar boosted. This follows a 31-year high surge of US inflation

Non-essential shops and services have reopened across England and Wales as lockdown rules are eased across the UK.

Gyms, hairdressers and zoos can now reopen, while pubs and restaurants are able to host customers in outdoor areas. Prime Minister Boris Johnson has urged people taking advantage of the eased restrictions to “behave responsibly” and continue to exercise advised steps to reduce the likelihood of contracting or spreading coronavirus.

Non-essential shops have been closed since 5 January when a third national lockdown was announced in England and similar measures imposed across the devolved nations. This new easing of restrictions coincides with the relaxing of Northern Ireland’s stay-at-home orders and other restrictions in Scotland and Wales.

58% of small businesses predict that their performance will improve this quarter as a result of these slackening restrictions, the highest proportion since the summer of 2015. Conversely, fewer than 24% anticipate a fall in sales.

“We’ve seen a phenomenal increase in bookings since the government confirmed restaurants can open on Monday,” said Patrick Hooykas, managing director of TheFork, formally known as Bookatable. “This week alone we’ve seen an 88% uplift in bookings.”

The pound also opened the week holding steady following heavy losses in the days prior. The GBP/EUR exchange rate fell over 2% over the past week before settling at €1.1514 on Friday.

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As of 05:16 UTC on Monday, GBP/EUR was trading -0.03% at €1.1509.

More than 32 million UK residents have now received a first dose of a COVID-19 vaccine. Last Sunday saw a reported seven deaths within 28 days of a positive COVID-19 test, the lowest daily total since 14 September.

The pound climbed against the dollar on Friday, reaching $1.40 for the first time in almost three years.

Sterling’s rally came on the back of reports that UK retail sales fell 8.2% in January as post-Christmas lockdown measures cut down on consumer spending.

It also coincided with ONS data released on Friday showing that the UK government borrowed only £8.8 billion in January, far below economists’ expected £25 billion. Earlier pandemic borrowing had contributed significantly to the UKs national debt of £2.1 trillion.

While it reached a high against the dollar, the pound fell 0.15% against the euro, reaching €1.1538 after what had been 11-month highs on Thursday.

The last time the pound was equivalent to $1.40 was in April 2018.

Chris Williamson, chief business economist at JHS Markit, said that the UK’s PMI reading during the latest lockdown measures suggested that the economy is ready for recovery. “Although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years,” he explained.

The $1.40 milestone was reached amid a surge of vaccine optimism and hopes for reduced lockdown restrictions in the UK, with a “roadmap” for easing restrictions set to be announced next Monday.

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Around 16 million UK residents have now received their first COVID-19 vaccine. The country has advanced further in tis vaccination programme than any other in Europe after being the first to approve the Pfizer vaccine.

Seven mass vaccination centres have been built in England, with the government voicing hopes that all adults may be vaccinated by the autumn.

By Don Smith

Despite a run of better than expected UK economic data since the Brexit vote – including 0.7% second-quarter expansion, beating estimates – financial markets are increasingly concerned about the outlook for the country’s economy and its currency.

This can be seen most dramatically in sterling’s plunge on the foreign exchanges, which shows little sign of abating. On a trade-weighted basis, the pound declined 15% between the June 23 referendum and October 12, while it has moved from 0.76 to 0.90 versus the euro over the same period.

Some bounce back from this sharp slide appears likely, but there’s little doubt that sterling’s underlying trend remains firmly downwards.

Although the UK economy should steer clear of recession, the anticipated broader effects of Brexit may soon become more evident. As a result, growth is expected to slow next year.

Consequently, the Bank of England (BoE) may cut interest rates further to provide additional support. The next move would likely be a decrease to 0.1% (from 0.25%), but this might not occur until mid-2017.

With interest rates already so low, and an uncertain path ahead for the economy, the BoE will exercise caution when deploying the dwindling number of arrows in its quiver. It will therefore likely attempt to influence interest rate expectations ahead of any actual move, continuing to issue a very dovish message to the markets.

While inflation is expected to keep rising, the BoE will continue to regard this as a short-term phenomenon, which doesn’t challenge the longer-term low-inflation outlook.

At the same time, sterling’s steep fall was largely unexpected. The pound is being driven by psychological forces, technical moves and speculative reasoning, all of which can be especially volatile and therefore very hard to predict.

The significance of the UK’s decision to leave the EU, and very likely the EU single market, is immense. According to leaked Treasury documents, a so-called “hard Brexit” could cost the UK up to €73 billion annually, leading GDP to underperform by as much as 9.5% in the coming 15 years.

It’s worth noting that the economy is highly dependent on trade and that, in contrast to the euro, the pound operates without the protection of a solid current account position. With the potential to fall a further 5-10%, sterling is thus left hugely exposed as we move into a period of major change for the UK’s network of trading relationships.

As far as its impact on the domestic economy is concerned, this is something of a double-edged sword: good for exporters but bad for consumers, whose spending power will likely weaken due to the effect of a short-term burst of higher inflation as import prices increase.

While there may be a backdrop of solid economic data, sterling remains vulnerable due to the current account position of the UK, which runs a deficit of about 7% of GDP – by far the largest in the G20 and, historically, the largest on record.

This deficit reflects, in the simplest terms, the fact that importers have to sell sterling in order to acquire the foreign currency that pays for goods and services sourced overseas.

As a result, a huge amount of sterling flows into foreign currency markets due to the sheer volume of UK imports in relation to exports. This, in turn, makes sterling’s value in the foreign exchange markets heavily reliant on the purchase of UK financial assets by overseas investors, who have to then swallow the loss.

Without these purchases, the value of sterling would fall even further. BoE Governor Mark Carney aptly captured this sense of vulnerability in his pithy comment about sterling relying on the “kindness of strangers.”

Sterling consequently now appears more vulnerable than any other major currency to investor sentiment.

In search of reasons for the pound’s recent plunge, the early October announcement by Prime Minister Theresa May that Article 50 of the Lisbon Treaty would be signed by the end of the first quarter of 2017 surely helped focus investor sentiment on the actual exit event.

Brexit now looks likely to happen no later than the second quarter of 2019 – although, subject to agreement with the rest of the EU, the deadline could conceivably be extended. Given the current rhetoric from key EU politicians, however, there are few signs that the bloc’s attitude to negotiations will soften.

It’s little wonder that markets are increasingly fearful.

Indeed, sterling’s recent plunge may prove just a harbinger. Today, the UK could well be enjoying the relative calm before the real storm that lies ahead.

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Mr. Smith serves as London-based Chief Investment Officer at Brown Shipley, a member of KBL European Private Bankers. The statements and views expressed in this document are those of the author as of the date of this article and are subject to change. This article is also of a general nature and does not constitute legal, accounting, tax or investment advice.

The Bank of England’s first polymer note – the New Fiver featuring Sir Winston Churchill – enters circulation today, Tuesday 13 September.
The New Fiver is cleaner, safer and stronger. The introduction of polymer banknotes allows for a new
generation of security features which make it even harder to counterfeit. The note is also resistant to dirt and moisture and so remains in better condition for longer. The strength of the polymer material means that The New Fiver is expected to last at least 2.5 times longer – around 5 years.
Commenting on the introduction of The New Fiver, the Governor said:

“The New Fiver commemorates one of the greatest statesmen of all time, Winston Churchill, who remarked that ‘a nation that forgets its past has no future’. Banknotes are repositories of the United Kingdom’s collective memory, and we will be reminded of Churchill’s enormous contributions as he once again becomes part of our daily lives as the New Fiver flows out into tills and pockets.
The New Fiver, made of polymer, will be cleaner, safer and stronger. Resistant to dirt and moisture, it will stay in good condition for longer. The new security features make it harder to counterfeit. While the use of polymer means it can better withstand being repeatedly folded into wallets or scrunched up inside pockets and can also survive a spin in the washing machine. We expect polymer notes to last at least two-and-a-half times longer than the current generation of fivers and therefore reduce future costs of production.”

Following the unveil of the note on 2 June at Blenheim Palace, Bank staff have travelled around the UK to show The New Fiver to the public and engage with retailers. Victoria Cleland, Chief Cashier of the Bank of England said: “The regional roadshows have been a fantastic way to share the new note with the public and retailers. The reaction has been overwhelming positive, and I have been struck by their enthusiasm to start using the notes.”

The Bank of England has printed 440 million New Fivers ready for issue and they will begin to be available from many cash machines and bank counters across the UK from today. Members of the public can expect to see a new note over the coming days and weeks.
Paper £5 notes will be gradually withdrawn from circulation as they are banked by retailers and businesses.
The public can continue to spend paper £5 notes as usual until 5 May 2017 after which they will cease to be legal tender. Following this, paper £5 notes will still be exchanged at the Bank of England. The new polymer £10 featuring Jane Austen will enter circulation in summer 2017 followed by the J.M.W. Turner £20 note by 2020.
Ms Cleland added: “The Bank has been working with the cash industry throughout this important and
exciting project and we’re grateful for their efforts in making the introduction of The New Fiver a success. We will continue to work with them throughout the transition and are looking forward to the introduction of the Jane Austen £10 note next summer.”
To help blind and vision impaired people distinguish between denominations the notes retain tiered sizing and include bold numerals and similar colour palettes to the current notes. In addition, polymer £10 and £20 notes will each have a tactile feature created by a series of raised dots, and the £5 note will be distinguishable by the absence of a feature.
Further details about The New Fiver can be found on www.thenewfiver.co.uk

(Source: Bank of England)

UK Services PMI has risen by the 5.5 points to 52.9, the biggest ever jump in the survey’s 20 year history.

The rise is a sharp bounce back from the 47.4 reading taken in July in the immediate aftermath of the EU referendum.

The pound jumped almost a cent against the dollar on the back of the news.

Laith Khalaf, Senior Analyst at Hargreaves Lansdown comments:

‘The service sector is the engine room of the UK economy, so a return to form represents a welcome vote of confidence in the country’s financial prospects. With parliament now back from summer holidays, the serious business of negotiating withdrawal from the EU begins in earnest. Brexit is going to be a lengthy process, with plenty of ups and downs along the way, so economically speaking it’s still way too early to start counting any chickens just yet.

It’s also worth bearing in mind that dramatic bounce-backs are often a reflection of the depths of previous despair, rather than of optimism over the future. In terms of services output, today’s reading is simply in line with survey results earlier in the year, and it is last month’s sharply negative reading which is the outlier.

Since the referendum economic indicators have by and large held up pretty well, and if the positive mood music continues that should put a spring in the step of the pound on the currency markets. More robust economic data would also make the central bank think twice about any further loosening of monetary policy, and may also play its part in determining the future of austerity, as we approach the new chancellor’s Autumn Statement later on in the year.’

(Source: Hargreaves Lansdown)

Sterling has encountered significant losses in recent days with the increasing support for anti-EU theme from the recent ORB polls conducted regarding the referendum. More than 55% of voters showed their support for leaving EU while only 45% were interested in staying back with EU. The important point to note here is that price action has been driven mostly by change in market sentiments based on results from poll data. The volatility of GBP has consequently increased since the announcement of referendum and has dropped to its lowest levels as last seen in 2008.

GBP has been performing very bad especially against dollar and GBP/USD reached its all-time-low level of around 1.39 during the month of February 2016. It was the time when initial talks about referendum came into picture that caused huge fears among the investors regarding the financial instability of UK. Based on technical analysis from the options market, there is 72 percent chance of GBP/USD pair trading anywhere between 1.32 and 1.51, by June 24th once the results of the referendum are announced. The GBP/EUR exchange rate is meanwhile expected to range between 1.33-1.35 after the voting.

The topic of British Exit from Europe has been discussed for years and became popular during February 2016 after Prime Minister David Cameron promised to conduct a voting for the same by June. Though voting will be held on June 23rd, it will not result in immediate departure of UK from the European Union. It would commence a multi-year negotiation period on the terms for exiting EU.  Based on polls conducted during last few months, there has been mixed results on the majority’s bias with some polls showing minor leads on either side. The below table from Wikipedia shows the results of various polls conducted regarding the referendum,

Date Remain Leave Undecided Sample Size Poll Name
9-10 June 42% 43% 11% 1,671 YouGov
7-10 June 44% 42% 13% 2,009 Opinium
8-9 June 45% 55% n/a 2,052 ORB
5-6 June 43% 42% 11% 2,001 YouGov
3-5 June 43% 48% 9% 2,047 ICM
2-5 June 52% 40% 7% 800 ORB
1-3 June 41% 45% 11% 3,405 YouGov
31 May - 3 June 43%
40%
41%
43%
16%
16%
2,007 Opinium
30 - 31 May 41% 41% 13% 1,735 YouGov
27 - 29 May 42%
44%
45%
47%
15%
9%
1,004 ICM
25 - 29 May 51% 46% 3% 800 ORB

Britain has always remained a semi-detached member of European Union and most of the British bureaucrats believe that they can do better alone. Some of them are frustrated by the fact that EU gets benefited more from the UK than UK from the EU.  The recent economic problems of some EU members like Greece have caused huge disinterest regarding the EU membership among British investors.  Though pound has decreased significantly against USD and the trading is done based on shifting expectations for the referendum, GBP/EUR is showing a longer-than-average bullish day’s range as of June 15th, which is giving a positive outlook for trading GBP. It is an early sign for positive impact on GBP in the currency market, after the steep decline experienced in recent days. The important fact to note here is that Brexit will not only affect GBP, but also Euro.

Based on certain analysis reports, UK leaving the EU could result in loss of more than 950, 000 jobs by 2020 and deficit around £100 billion which is around 5% of their GDP. When looking at possible impacts for each decision, it is important to note that whatever significant ground lost in recent days is likely to be made up relatively fast once the business gets usual after the referendum. But even before voting, many investors are selling GBP as risks are associated more with the decision. If we look at the current account deficit of UK, it clearly indicates that GBP is becoming weaker. UK has a current account deficit of more than 5 times its GDP, which is the worst for any developed nation making this a strong reason for sterling’s weakness in currency market. In the coming days closer to referendum, we can expect to see sterling respond less to economic reports of UK and trade based on Brexit-related updates.

Any pro-Brexit pool can result in further decline of GBP and anti-Brexit news could cause an upward trend on GBP. If the Brexit vote becomes positive and pound hits the lows, it will be a good time to buy GBP as it will definitely bounce back after some time. The Bank of England might come for rescue by announcing interest rate hike to generate a positive sentiment among the investors. Euro will also face downward pressure, if the Brexit vote becomes positive and is already witnessing some volatility based on the poll results.  Trading GBP amid this volatility is a risky affair for currency traders since none of us have a crystal ball. Since the vote is currently too close to call, it might be sensible to lighten up your exposure ahead of the referendum.

The final design for the new Bank of England £5 note, which will enter circulation in September, will feature the image of Sir Winston Churchill. The new note will be made of plastic rather than cotton paper, which is believed to be cleaner, more durable and harder to counterfeit than the current cotton paper banknotes.

However, the use of new material might create difficulties since the notes may initially be prone to stick together. Although countries such as Scotland, Australia and Canada have been using the thin, see-through polymer, plastic banknotes are brand new to England.  The new polymer notes, which are 15 % smaller than the current ones, will be accompanied by advice to businesses about dealing with them.

The decision to feature Churchill was made three years ago. Churchill’s declaration "I have nothing to offer but blood, toil, tears and sweat", a view of Westminster and the Elizabeth Tower from the South Bank, the Great Clock and a background image of the Nobel Prize are all present in the artwork on the banknote. It will take a year for the new note to completely replace the current 329 million Elizabeth Fry £5 notes in circulation.

Plans for other notes include featuring Jane Austen on the new £10 note which will be issued in 2017, and JMW Turner who will appear on the next £20 banknote expected by 2020. New polymer banknotes are being issued in Scotland as well.

 

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