There is thought to be plans to look into changing the focus of the Bank of England (BoE) policies. Currently the BoE is set the task of maintaining inflation above the 2% mark and implementing policies in order for that to be the constant. Anytime inflation falls below this level, the Bank of England have to write a letter to the Chancellor explaining why, which we have seen happen in the last month.
There is however consideration being given to change the Bank of England’s mandate, that they should focus on nominal GDP growth. This would mean they’re not just focussing on the control of prices for products, but making sure the UK prospers from continuous economic growth. Arguably this would mean that Andrew Bailey, the Bank of England Governor, would have different objectives to the current task at hand. Whilst this wouldn’t be an imminent change it is being considered and may have a positive effect on the UK’s recovery from Coronavirus. If the Bank of England were to introduce measures to grow the UK’s GDP there would be much more chance of a V-shaped recovery.
The next Bank of England Monetary Policy Committee meeting is not until the 18th June, where there is expected to be a big decision regarding negative interest rates. This has never been done in the UK but there is talk that it might happen. Generally, a currency does not perform well when there is a interest rate cut and a move to negative interest rates could have a significant effect on sterling. This would essentially mean people are charged to keep their funds in saving accounts forcing people to spend their money, it is a rare and quite extreme measure. If you’re looking to complete a sterling transfer in the near future, you may wish to speak to your account manager.
The European Central Bank (ECB) will provide their latest interest rate decision on Thursday, afterwhich ECB President Christine Lagarde will provide a statement. This will be an opportunity to find out about the ECB’s current polices with the latest package announced for Coronavirus likely to be a key topic. There will be questions from journalists all across the EU trying to find out information regarding the package which will see just under €1tn injected into the economy. It will certainly be worth keeping an eye on this event as past events suggest there could be immediate reactions from the currency market.
There will also be plenty of other data from the EU this week with Retail sales and PMI data to name but a few. Furthermore, there will be economic data from individual countries which may start to show the extent of the impact of Coronavirus.
In the last week there has been a slight improvement in business sentiment data with companies suggesting their outlook for the next few months is better than it has been at any point in the last few weeks. Much of this will be to do with the lockdown limitations slowly being reduced, allowing consumers and business' to start spending money again. Any data at the moment is obviously to be read and digested in context, with many expecting the worse for a lot of areas across Europe. However, anything that is unexpected could have an impact on the euro so make sure you’re keeping an eye on the market.
The protest across the US over the weekend could very quickly have a significant effect on the recovery attempts for the US economy. As large crowds start to gather there is major concerns that not only is there a high risk of the virus once again spreading, but the bounce back of the US economy could be restricted. The US has been hit incredibly hard by Coronavirus in particular areas following the events at the end of last week, which have now resulted in the cross-country protests could well create further problems for Trump and his Government.
The US dollar in times of uncertainty normally strengthens as it is considered a safe-haven currency. This could potentially be the case in the coming week despite the US being the main country to suffer. President Donald Trump has continued to share his thoughts on the events over the past few days and is probably wondering how all of this will play out with his chances for re-election. Trump is still very keen for the election to take place in November with normal voting booths being used.
This week there is a raft of US data releases which can have a immediate effect on the currencies value. There will be manufacturing data and production data earlier in the week, then finally on Friday the latest jobs data for the month of May will also be released. Considering the amount of disruption in this last week, we might see the recent record lows once again tested.
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