Economy to be stronger for greater number of jabs

Next week, there will be further evidence of the pace and likely longevity of the recovery of the UK economy.

Flash estimates will be released for Purchasing Manager’s surveys that show they are growing at the fastest pace since the 1990s.

A CBI survey of order books should back up the data. Input or factory gate prices are increasing across a wide range of raw materials for a variety of reasons linked to issues with supply chains, scarcity of goods and, of course, Brexit.

The UK’s departure from the EU has become something of a catch-all for business when asked how well it is doing.

“Well, it would be far better if we didn’t have the extra Brexit documentation to deal with!”

A weaker pound versus the dollar will make UK exports cheaper, and with the country trawling far and wide for new trade partners, that will be an additional bonus.

Furthermore, as all major economies seemingly willing to ignore inflation, the effect of a weaker pound will also be ignored (for now).

Next week the Bank of England’s Monetary Policy Committee will meet with Andrew Bailey’s Press Conference scheduled for Thursday lunchtime.

Bailey will most likely be more Powell than Lagarde in his comments.

He is likely to acknowledge that inflation is above the Government’s target, call it transitory and go on to say that the time is not yet right to consider tapering, especially with several Government supports about to be removed.

The pound has begun its long-awaited fall versus the dollar, reaching a low of 1.3908, having inched, possibly for the last time in a while, above1.40 earlier.

Versus the euro, the pound has rallied to a high of 1.1707 but fell back to close at 1.1685. Its highest close since early April. If it manages to continue to rally and reaches close to 1.1770, it will bookend the quarter nicely.

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Threat to taper enough to push greenback higher

The FX market is not easy to predict. Indeed, a sure thing is a rarity. The last time I saw such a cast iron certainty was when the pound was forced out of the ERM in 1992.

The dollar index was sitting waiting for the Fed to act or at least promise to act, having exhausted just about every possible reason to fall any lower.

The pound’s rally versus the single currency yesterday confirms that it was the euro that was overvalued due to its high proportion of the index’s makeup.

Talking about talking about tapering, as Jerome Powell said in his remarks to the press, has been enough to light a fire under the dollar.

Now the race is on, but with very different explanations.

The U.S. economy is going gangbusters due entirely to the level of stimulus injected by the Biden Administration backed up by the Fed,

The UK will be a little cautious mainly due to the fact that, despite the economy recovering at a very handy rate, the withdrawal of Government support, as mentioned above, could have a cooling effect.

The ECB will continue to pump support, according to Christine Lagarde, until the recovery is undeniable. That is mainly because have-nots are more heavily represented on the Governing Council than the haves.

A stronger and strengthening dollar will have a marginal effect on inflation but now when asked about an inflation rate above 5%, Jerome Powell simply looks the other way.

Predictions at the height of the pandemic were for the Central Bank to begin to raise rates in 2024. Following the FOMC, it is now likely that by 2024 they will have finished!

The dollar index rallied to a high of 92.01 yesterday, closing at 91.96.

Technically, the charts are beginning to predict a rally to attest the year’s high at 93.43.

Von der Leyen shows her generous side

If you ever needed to be convinced that everything is relative, you only need to hear that the Greek economy has been granted relief valued at EUR 30.5 billion.

It is only a few weeks since the Greek Prime Minister commented that the economy was doing well, and the recovery is on track.

The relief plan presented to the EU Commission has been labelled Greece 2.0 which won’t necessarily amuse the German Administration who footed the bill for Greece 1.0.

Being charitable, Greece has had little option but to throw itself upon the mercies of Brussels, given that its tourist-based economy has been decimated pretty much through no fault of its own.

The Greek economy shrunk by 8.2% in 2020, but the new funds will be used to stimulate rather than support the economy.

A series of new infrastructure projects are planned to try to diversify away from tourism.

Ursula von der Leyen has been on a tour of several nations that have had to apply to the EU Commission for support funding.

In Spain and Portugal, she has endorsed their recovery plans. Twenty-three of the EU’s 27 members have so far submitted their plans.

It will be the ultimate irony is Sr. Draghi’s plans are not acceptable to Brussels.

Italy has applied for relief funding as the ECB’s former President grapples with yet another issue, just when retirement beckons.

As well as the UK, the EU will release PMI data next week and while expected to be impressive, are not expected to be as good as will be seen in the UK.

This is despite the Eurozone coming from a far lower base and effectively being close to recession at the start of the Pandemic.

The euro is fundamentally weak, despite the fact that it has appear to be strong during the recent period of dollar weakness.

Yesterday, it fell to a low of 1.1891, closing at 1.1908 as, similarly to the pound, it said farewell to a significant support level.