The latest ONS estimate suggested that 18% of the workforce was on furlough in the latest week. The data illustrated underlying pressure on public finances if there is a rapid easing of coronavirus restrictions with some concerns that overall Sterling buying would fade.
Sterling maintains its firm tone as the successes of the vaccination programme continued. There was slight pressure however, for a correction against the Dollar on Thursday but this later faded despite further optimism over ther a string of unease over UK fundamentals. There were also reservations over the risk of a prolonged battle between the EU and UK over access for financial services companies into the EU market.
Bank of England chief economist Andy Haldane maintained his bullish outlook on the recovery of the UK once restrictions are lifted, with unintended savings liable to be £250bn by June which would release pent-up demand. UK GDP increased 1.0% for the fourth quarter of 2020, above expectations of 0.5% with a 9.9% contraction for 2020, while exports were weak. Investment data was also slightly stronger than expected and Sterling paired losses to trade at 1.3800 against the Dollar, with the Euro at 1.1376.
US initial jobless claims declined to 793,000 in the latest week, but was above consensus forecasts of 760,000 and the previous week’s data was revised sharply higher to 812,000 from the original figure of 779,000. Continuing claims declined to 4.55m from 4.69m while the number of pandemic assistance claims registered a very sharp increase of over 2.5 million for the latest week.
The dollar edged weaker following the data with fresh reservations over the near-term jobs outlook despite optimism that there would be a strong recovery later in the year. The US currency was also hampered by dovish comments from Federal Reserve (Fed) Chair Powell on Wednesday as well as the subdued reading for underlying inflation which dampened expectations that the central bank would come under pressure to tighten policy.
The Euro maintained a steady tone heading into Thursday’s US open, with reservations over the the US Dollars short term recovery outlook capping the Euro bears, the single currency however failed to capitalise and remained in a somewhat narrow range.
The EU Commission lowered its 2021 GDP growth forecast to 3.8% from 4.2% previously as the Commission noted the near-term outlook for the European economy looked weaker than expected last autumn, as the pandemic has tightened its grip on the continent but was optimistic over a strong recovery later in 2021. There was some additional Euro support coming from reports that the Italian 5-Star Party would support a coalition government led by former ECB President Draghi.
As of writing, the Euro currently trades around the 1.2115 mark against its US counterpart.
Data to watch
02:00 - GBP - Prelim GDP
Posted in Daily Market News on Feb 12 2021