Vaccine Hopes Boost British Pound

File photo: A nurse prepares to administer the Pfizer-BioNTech COVID-19 vaccine at Guy’s Hospital in London, on December 8, 2020. 
Frank Augstein / POOL / AFP

 

 

The British pound continued a frantic two-month rise against the euro and the dollar, reaching new highs this week in a sign of traders’ enthusiasm for the country’s vaccination roll-out.

Just before Christmas, investors feared the country would leave the European single market without a post-Brexit trade agreement.

At the same time, a deadly second wave and new, more transmissible coronavirus variants pushed infection rates up and saw the death toll soar.

It currently stands at more than 120,000 — one of the worst in the world.

But since December, the pound has gained more than five percent against the euro and US dollar, making it a top performer among major currencies.

The jump is due to the number of people vaccinated: according to the government, one adult in three has already received a first dose, representing more than 17.5 million people.

Another reason for optimism is Prime Minister Boris Johnson’s publication Monday of a “cautious but irreversible” roadmap to ease lockdown restrictions by July.

“After a year in which the government’s reputation was soured by a string of policy U-turns, the UK has made good decisions regarding vaccines,” Jane Foley, head of FX strategy at Rabobank, told AFP.

“The vaccine rollout has improved the economic outlook in the UK relative to elsewhere, especially in the EU,” Capital Economics added in a note.

– Positive rate –
“Markets are still adjusting to the fact that the Bank of England is unlikely to implement negative rates for now,” added analysts at Swiss bank UBS.

Like other central banks, the Bank of England adopted a record low interest rate of just 0.1 percent to cushion the economic impact of the pandemic.

But traders were mainly worried it would adopt a negative rate like the European Central Bank or the Bank of Japan.

At its last monetary policy meeting, the bank took that option off the table until August, and governor Andrew Bailey said it might not be implemented then either.

As a result, forex traders began to bid up the pound against the dollar and the euro.

Unlike Europe’s single currency, whose strength has weighed on exports, the pound is still at relatively low levels.

While it is just above $1.40 at a near three-year high, the British currency is still six percent below levels seen before the June 2016 Brexit referendum, and 12 percent down against the euro.

“A stronger pound is another headwind for UK exporters and provides some small relief for households,” noted Paul Dales of Capital Economics.

“But it’s not going to make a big difference to the economy.”

Foley warned that “there are speed bumps ahead”.

The effectiveness of vaccines against coronavirus variants and the strength of the UK recovery will determine if the pound remains at its current levels or not, she forecast.

And another risk looms on May 6 when elections for the devolved parliament in Scotland could give fresh impetus to the pro-independence movement, she added.

EU Gives Post-Brexit Reprieve To London Clearing Houses

The flags of Britain (R) and the European Union flutter in front of the Chancellery in Berlin, where the British Prime Minister was expected on April 9, 2019. MICHELE TANTUSSI / AFP.

 

The EU on Monday adopted a crucial emergency measure to safeguard the stability of financial markets after the Brexit transition period ends on December 31.

The decision came as negotiations on future relations between EU and UK have descended into acrimony, with the increasing likelihood of a chaotic, “no-deal” scenario.

The plan is to preserve the stability of the market in derivatives, a complex but vital financial instrument that allows traders to insure themselves against sudden interest or currency exchange rate swings.

The EU derivatives market is almost exclusively centred on London and was notionally valued in 2018 at 660 trillion euros ($750 trillion) — nearly 300 times the size of Britain’s entire economy.

In the EU’s plan, institutions where these transactions are finalised would have a licence to keep working with EU traders for another 18 months after December 31.

It will allow European firms until mid-2022 to handle the key service, currently executed by the London Stock Exchange and other clearing houses.

“Clearing houses … play a systemic role in our financial system,” Valdis Dombrovskis, an EU Commission executive vice president, said in a statement.

“We are adopting this decision to protect our financial stability, which is one of our key priorities,” he added.

The next formal round of negotiations on the future relations agreement will take place in Brussels next week.

Already at an impasse, the talks were further undermined by Britain’s wish to go back in part on its divorce agreement, signed in January, to the fury of the Europeans.

AFP

EU Tells UK Post-Brexit Deal Vital During COVID-19 Crisis

European Union, Ogbonnaya Onu, Science and technology

 

The European Union’s chief Brexit negotiator told Britain on Sunday that the economic damage wrought by the coronavirus crisis made it especially important the sides reach a new trade deal.

EU and UK negotiators will enter a fourth and last scheduled round of talks this week that could determine if a comprehensive new agreement is struck by the year-end deadline.

Britain formally left the other 27 EU nations in January but still largely operates as if it were a member of the bloc.

It also continues making contributions to the EU budget — a reality that particularly upsets Brexit supporters.

British Prime Minister Boris Johnson has vowed not to extend the talks past the current deadline — something he must do by the end of June — and the prospects of a broad new deal look bleak.

Chief EU negotiator Michel Barnier told The Sunday Times that London and Brussels could afford to make the economic situation even worse by breaking off their nearly 50-year partnership without arrangements for what comes next.

– ‘Three steps back’ –

“If we don’t get an agreement then that will have even more consequences. And then of course those will be added to the already very serious consequences of the coronavirus crisis,” Barnier said.

“So I think that we have a joint responsibility in this very serious crisis, which affects so many families… with so many deaths, so many people sick, so many people unemployed… to do everything we can to reach an agreement and I very much hope that we will do so.”

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The previous round of talks ended in acrimony in May.

Johnson is expected to work out the best way forward with EU chiefs Ursula von der Leyen and Charles Michel at a summit held shortly before the June deadline to extend the talks by up to two years.

READ ALSO: 100-Year-Old Indonesian Woman Beats COVID-19

The European Union is willing to offer Britain preferential trade terms if Johnson signs up to the major standards and regulations followed by the remaining members of the bloc.

Johnson’s team argues that the whole point of Brexit was to give Britain the right to set its own rules.

Barnier accused UK negotiators of reneging on the commitments Johnson signed up to in a non-binding political declaration that accompanied the sides’ formal divorce deal.

“The UK has been taking a step back — two steps back, three steps back — from the original commitments,” Barnier told The Sunday Times.

“The UK negotiators need to be fully in line with what the prime minister signed up to with us.”

AFP