Vaccine Lockdown

GBP – Lockdown affected GDP

A successful rollout of vaccines is hoped to move us toward pre-Covid normality. The new Covid variant is however resulting in a serious escalation in infections and hospitalisations. The government is targeting two million jabs a week to reach about 13 million of the most vulnerable by mid-February.  The hope is that lockdown restrictions can start to be eased soon after. 

In the short term, economic activity is likely to remain suppressed by containment measures. The economic impact of the latest lockdown measures is less severe than the first closures last spring.  We are expecting to see a contraction of around 4% on the month in fourth-quarter GDP this week.  A further decline in the current quarter is also likely.  Sterling has been a notably weaker this year, as investors move on from the risk of a Brexit ‘no deal’ scenario. 

The Bank of England has suggested post-Brexit trade frictions could temporarily reduce economic activity. Sterling has been weighed down by speculation that interest rates could be reduced into negative territory, to provide further support. Attention will be on speeches by MPC members this week. Silvana Tenreyro is scheduled to speak about international evidence on negative interest rates. Ben Broadbent speaks on “Covid and the composition of spending” tomorrow. 

GBPEUR – 1.1084

GBPUSD – 1.3511


EUR – ECB minutes 

We expect the minutes of the European Central Bank’s December meeting to provide further information on future monetary policy. At that meeting, the Pandemic Emergency Purchase Programme (PEPP) was expanded to €1.85 trillion.  Risks to the economy were described as “less pronounced”. Uncertainty about the monetary policy outlook remains high, with Covid containment measures likely to be in place for longer than expected. Covid cases are picking up across the continent.

Germany release GDP for the full year 2020 this week, which is expected to show an overall fall of 5.1%. We will also have an update on Eurozone industrial production. These figures are expected to show a slowdown after a bounce on the latest reading. 

EURUSD – 1.2190

EURGBP – 0.9022


USD – Democrats take control of Congress

There is the potential for a larger US fiscal stimulus package after the Democrats won the two Georgia Senate seats and effectively took control of Congress.  With Joe Biden winning the presidency and the prospect of greater stimulus, better economic growth prospects are expected.  US 10-year Treasury yields have risen above 1% with global equities also moving higher. Some Federal Reserve officials have indicated that a ‘tapering’ of bond purchases may begin late this year or in early 2022. 

The non-farm payrolls showed a fall of 140,000 jobs in December.  This is the first monthly fall since April and continues the monthly worsening of these figures.  This week, we will see CPI inflation, weekly jobless claims, retail sale and the University of Michigan consumer sentiment.   Inflation is likely to rise by 1.3% due to higher energy prices. Retail sales have fallen after a strong summer. They may have picked up in December, but are likely to be flat overall.  Consumer sentiment will no doubt have been dented by the increase in Covid cases, despite the start of the vaccine rollout. 

GBPUSD – 1.3511

EURUSD – 1.2190


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*Interbank rates correct as at 7 am on the date of publishing.