Yesterday was another tough day for sterling as UK inflation numbers fell to their lowest levels since August 2016. The Office for National Statics reported that Consumer Price index (CPI) fell to 0.8% from 1.5%. As expected, the main driver for the decline in inflation was the drop in the price of fuel due to demand. Now that inflation has dropped below 1%, Governor of the Bank of England Andrew Bailey will have to formally write to the Chancellor explaining the falls.
The inflation numbers follow a rise in unemployment and claimant count released yesterday and a fall in manufacturing and production released last week. Therefore, the early signs for the UK economy are not looking positive and to add the pounds woes, Chancellor Rishi Sunak announced earlier in the week that there may not be an immediate bounce back from the Coronavirus crisis. However, these economic releases are not a surprise and we are seeing a similar sight around the globe. If you have an upcoming currency requirement involving the pound it’s important to contact your account manager to discuss the other currency that you are trading.
Over the last 2 months Brexit appears to have been on the back burner whilst the UK and the rest of the world fight the pandemic. However, in the background UK and EU negotiations continue to discuss the trade deal and reports this week have not been promising. Chief EU negotiator Michel Barnier has announced that the UKs demands are ‘unrealistic’ and therefore it’s unlikely that there will be a deal. In addition, Cabinet Minister Michael Gove has insisted that he’s confident that a deal will be reached, however little progress has been made so far. Therefore, the conflicting statements by two key individuals associated are creating more uncertainty for the pound. The longer this goes on the more we could see sterling suffer.
It’s a fairly busy finish to the week. This morning Manufacturing and Services data are to be released. Contractions are widely expected which is no surprise the golden question is by how much? In addition, Retail sales numbers are released Friday morning and with all shops remaining closed on the high street, monthly figures are being predicted to be released at -16%.
The euro has been making gains against the pound and US dollar in recent weeks, but in particular over the last few days as Germany and France have proposed a 500 billion euro recovery fund to help the countries that are worse impacted by the Coronavirus. This is a major U turn from the German Chancellor Angela Merkal, as only a few weeks ago the Chancellor was not keen on European nations sharing debt. In general, the news has been welcomed by most, however some countries like Austria have stated they would rather see loans handed out over grants. Nevertheless, countries that are hit the hardest will be provided support and this can only be a good thing for the euro.
Economic data releases for Europe have been on the decline in recent weeks which is to be expected. However earlier this week German ZEW economic sentiment exceeded expectation and was released at 51 when the forecast was for 32. The ZEW economic sentiment is a survey completed by around 350 German institutional investors and analysts, which shows business confidence for the next 6 months. A reading of 51 shows that Germany have hope for business moving forward. Today German manufacturing PMI is to be released this morning. A contraction is expected as the data is set to be released at 26.6, however any deviation from this could cause euro volatility.
After trading hours yesterday afternoon, the Federal Reserve released their latest minutes. The key points to take away was the FEDs concern about a second wave and consequently how that would impact low income households. In addition, the minutes suggested that more action from the FED is more than likely required throughout the year but for the time being they wanted to see how the developments of Coronavirus unfold. It was only 12 months ago when the US interest rate was 2.5% but over the last 12 months this has decreased and now sit at 0.25% which the FED expects that they will remain until a recovery is firmly under way.
To finish the week the US are set to released Initial jobless claims this afternoon, which will be followed later in the afternoon by a speech from Fed Chair Jerome Powell. A sharp rise in initial jobless claims materialed throughout April, therefore it will be interesting to see if the May release follows suit, putting pressure on the US dollar. As for Jerome Powell speech, if the minutes yesterday are anything to go by, uncertainty is on the horizon and the head of the Central Bank will likely announce that the FED will continue to monitor and make the appropriate changes when necessary.
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