UK’s departs the EU with a whimper not a bang

At 11pm tonight, the UK will sever all ties with the EU after 47 years in which it has never sat comfortably at Brussel’s table.

The Coronavirus Pandemic has robbed the nation of a night of celebration or disappointment depending on your point of view, and the next few weeks are likely to be chaotic for those wishing to continue to do business in or with the EU.

The pound has also greeted the news in a muted fashion. There is clearly still time for the markets to push the pound far higher as fears over a no-deal departure disappear, but the country faces a far more serious short-term problem.

Another large swathe of the population was placed in tier four, as the new strain of Covid-19 sweeps the country. Only one region, the Scilly Isles, 37 miles off the mainland remains in tier one, while another 22 million people will spend the first days and weeks of 2021 under the strictest form of restrictions.

Boris Johnson, taking questions at last evening’s press conference was asked about his feelings as the Oxford/AstraZeneca vaccine was approved for use yet the country is facing more severe restrictions, while he has fulfilled a personal goal of gaining a Brexit deal that few thought possible.

He chose to focus on the Pandemic saying the vaccine was a tribute to UK science and engineering, but he faces the future with grim determination.

The pound traded marginally higher as market liquidity wound down for the end of the year. It traded between 1.3492 and1.3624, closing at 1.3617.

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Yellen to shake up dollar bears

The dollar index is in the grip of bearish sentiment driven by hopes that Congress will approve further support for those affected by the Coronavirus Pandemic and that will in turn provide a boost to risk appetite.

It has without doubt been an odd year for the U.S., highlighted by the bizarre events around the election. As has now been proven, the result was far more decisive than was interpreted by the data on election day itself and it was the decision to count postal votes last instead of first that caused drama in several States.

The Federal Reserve will emerge from 2020 in a strong position, headed by a pragmatic Chairman who appears to decry political points scoring in favour of getting the job done.

Recognizing the effect of the Pandemic on the economy early, the FOMC cut interest rates twice between meetings to add support while its bond buying programme both added stimulus and drew support from former Chairman Ben Bernanke.

The economy remains on a knife edge with employment data providing a useful barometer. It first swung strongly towards the recovery, then seemed to swing back as firms became more nervous while lately jobless claims appear to be plateauing.

This is something the new Administration is going to need to concentrate upon although Fed predictions point towards a 5% unemployment rate by the end of 2021.

Yesterday, the dollar index fell again, reaching a low of 89.56, closing at 89.60.

Von der Leyen floundering without help

The changing of the guard at the top of the EU tree has done very little for the bureaucratic mess that Brussels finds itself in.

Both Christine Lagarde at the ECB and Ursula von der Leyen at the EU Commission have found that it can be both tough and lonely at the top, but they have each come to terms with the job at hand. Both starting their terms in the midst of a crisis, neither has had time to stamp their authority on their respective roles and have had to make do with what they inherited.

In Lagarde’s case that was a well-run but slow to react Central Bank, chaired by a man who had earned the right to be especially well regarded immediately following the financial crisis.

Von der Leyen was less fortunate. She inherited something of a bureaucratic morass which had been a significant reason for the yes vote at the UK’s Brexit referendum.

It seemed that von der Leyen’s predecessor Jean-Claude Juncker believed in an approach to governing the EU by consensus and thus saw his hands tied on several occasions.

The European Union came close to devastation during the first wave of Covid-19 and appeared to adopt every man for himself tactics as borders were closed. This did little to stem the wave of transmission and it seemed to start to die down almost of its own volition.

The second wave has drawn a far more dramatic and immediate response although it has been far from consolidated.

It is clear that the arrival of a vaccine is likely to be a game-changer, but even after the worst of the Pandemic is over, the EU Commission will still face a familiar set of problems.

Yesterday, the euro rose again on the back of a falling dollar index. It reached a high of 1.2310, closing at 1.2291.