News & Analysis

Which way will Boris Johnson turn the key?

Andrew Saks, Friday, 14 May 2021

At 17.00 today, UK Prime Minister is set to make an announcement. He is using nuanced language. Will we see another lockdown and are APAC currencies set to rise against the Euro, Dollar and Pound?

In the majority of Western nations, the two main ideologies that have existed ever since the post-industrial revolution period have remained relatively dominant.

There has been those who believe in free market capitalism and small government, with open and available opportunities for all and low levels of state intervention or ownership, and those who believe in socialism and large government, with limited opportunities for entrepreneurial or corporate prosperity in the hands of private owners, and high levels of state ownership.

Quite simply, from the 1950s until very recently, members of society in Western countries had two options, each of which catered toward those two opposing ideologies. Conservative or Labour in the United Kingdom, or Republican or Democrat in the United States. Trade unions and nationalization vs survival-of-the-fittest go-getters.

Nowadays, there is no left or right. There is no trade union vs the 7 day a week entrepreneur. There is no government sector gravy train vs the higher risk/reward of the private sector.

Today the polarization in Western geopolitics is centered around pro-lockdown and anti-lockdown. Pro-liberty and anti-liberty.

This enormous shift, which took place suddenly in March 2020, has changed the way absolutely everything is done, including how the markets react to official announcements, and how the government treats the general public.

Today's forthcoming announcement by British Prime Minister Boris Johnson is no exception.

It was almost as though a carefully planned execution of strategy has been trotted out. Allow the public and some businesses a glimpse of the 'freedom' that they now no longer take for granted and have been deprived of for over a year, and the Pound rockets.

The past two weeks have been a period during which forecasts have predicted a huge spending boom in the United Kingdom. In fact, some of it has not been just a mere prediction. Next week, one of the key market events for the British Pound to use as a reference point will be the announcement of how many new cars have been registered.

Astonishingly, the new car registrations in the United Kingdom in April compared to fully locked down March is widely expected to be 453% higher. That is incredible. It shows how those who consider themselves safe from economic curtailments are now releasing the grip on their wallets.

Retail spending is up, too, as is hospitality revenue, despite venues only being allowed to host their customers outside in the wind and rain.

People want to spend. People want to work, and want to be free to participate in normal society. Those against the lockdowns have largely carried on their lives and ignored many of the restrictions, but there is no possible way to ignore the closed businesses and deserted offices.

Perhaps the government wanted to show some light around the elections, to make people believe that they are not the 'lockdown party', and to passify the increasing dissent against these restrictions.

Now, however, this afternoon, Prime Minister Boris Johnson is about to make an official announcement. Its subject this time is around, once again, the alleged dangers of what the government is referring to as another strain of the COVID-19 virus. Mr Johnson has stated today that he was “anxious” about this 'variant' and is “ruling nothing out” to tackle it.

Does this mean another lockdown? If so, what will happen to the value of the Pound? Will the public tolerate it, or is it now crunch time where the government will not be able to win the support of the analytical and pragmatic public?

The Pound remains steady against the Euro, however most of Western Europe remains in lockdown, with its economies absolutely paralyzed, so therefore it is not much of a yardstick.

The Pound is actually up in value over its already high point this morning, with GBPUSD currently at 1.41 with just one hour to go before Mr Johnson's announcement.

Currently, the economy's movements and intrinsically the Pound's movements are more linked to how severe a lockdown is at any point in time, rather than what it will do if lockdown ever comes to an end.

The interesting dynamic is that all of the lockdown talk in the West, and the constant extension of restrictions, minimal eases and reintroduction of restrictions has kept currencies from those regions, especially the Euro, Dollar and Pound, relatively stable against each other.

Conversely, when looking at the GBP against the Hong Kong Dollar, and Singapore Dollar, the currencies of nations with no lockdown and very high levels of capital markets activies in that they are both institutional financial centers, being essentially Far Eastern versions of London and New York, the Pound is beginning to suddenly tail off and decline.

Mr Johnson is expected to mention vaccines. He has not ruled out rolling out surge vaccinations more widely, with a spokesman saying ministers “want to consider all options”. As a result Astra Zeneca stock has rocketed in the past hour, and is up by 10 points since 16.00!

Perhaps this is because ultimately, economies with full capital markets activity and infrastructure including world-class trading venues, Tier 1 banks, all of the market connectivity and hosting infrastructure that powers London's epicenter of global finance, all provided by the same companies and no lockdowns in the local economies, confidence may be beginning to shift toward the Eastern markets.

Just over the past few hours, GBP has taken a hit against the HKD of four points.

Thus, today's economic sentiment is heavily influenced by government policy on personal and commercial liberty.

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