Sterling cemented its recent gains against the euro over the weekend, with GBP/EUR rates moving back above 1.20.
The pound hit a high of 1.2048 against the euro during Sunday’s trading, having broken this key threshold more than once last week, during what was one of the pound’s most productive weeks of the year so far.
This upturn coincided with a pledge from UK PM Boris Johnson to increase spending and also a seemingly vailed threat to the EU, as he reiterated that the UK would look to negotiate multiple global trade deals alongside the one currently being negotiated with the EU.
Whist the pound saw its value increase against the EUR, UK economic data remains fragmented. The recent Gross Domestic Product (GDP) figures showed that despite the recent positivity surrounding the UK economy following the general election results, the UK economy completely stagnated in the last three months of 2019. Manufacturing data in particular, is a cause for concern having contracted for a third quarter in a row, and Services data also showing a sharp decline. Political uncertainty and the longer-term economic impact of Brexit are being cited as two key reasons behind the stagnation.
The fact the UK economy grew by 1.4% in 2019 compared to 1.3% in 2018, is likely to have boosted investor confidence in the short-term and helped boost the pound to its current levels.
Those clients holding GBP could be in for a busy week with multiple UK data releases that have historically caused volatility on GBP exchange rates.
Tomorrow we see the latest Unemployment figures, with the official rate expected to remain at 3.8%. However, with Average Earnings figures predicted to come out below last month’s figures, could the pounds recent upturn be about to stall?
Looking further ahead and Wednesday see’s the release of key inflation data, whist Thursdays Retail Sales figures are predicted to show a big jump from -0.6% to 0.4% month on month. Whilst this would certainly be a significant upturn, it is still expected to fall shy of the 0.9% YoY figure.
Finally, on Friday we have the latest Manufacturing and Services PMI data. Concerns over the recent downturn in Manufacturing figures means the prediction of 49.7 would definitively confirm economic contraction in this key sector of the UK economy.
The euro saw its value slide against the pound and US dollar last week, amidst a growing economic crisis inside the EU.
Not only is the EU having to come to terms with losing an integral member following the UK’s departure, but it is also facing fresh fears of a block wide recession, as growth hit a seven-year low following Friday’s Eurozone GDP figures.
With just 0.1% growth, Eurozone growth hit its lowest figures since 2013. Germany and France showed stagnation and contraction respectively, whilst Italian GDP figures also showed economic contraction in the last quarter of 2019.
This has led to fears that the EU’s two leading economies are dragging down the entire bloc, with Germany’s growth figure coming out well below expectations. Germany has posted poor growth figures for the last three quarters, with the country once again on the verge of economic recession.
Adding to the current concern is that the latest figures were taken before the Coronavirus hit, and with European leaders already stating that factory closures in China due to the virus were going to impact EU production, it is highly possible that the current economic climate could further deteriorate.
Today’s Eurogroup meeting is likely to focus on the current economic downturn inside the bloc, whilst those clients holding the EUR will hope Construction data doesn’t fall below the expected result of 1.4%.
Looking ahead to the remainder of the week and economic data for the Eurozone is relatively sparse, so Thursday’s European Council meeting and Consumer Confidence figures could prove key. Consumer Confidence in particular, has historically caused significant volatility for EUR exchange rates and as such will likely be followed closely by investors.
The USD continues to find plenty of support against both GBP and the EUR, despite the pound’s upturn last week pushing GBP/USD back up to 1.30.
Investors have turned to the dollar in recent weeks as fears over the global economic slowdown in Europe, coupled with the economic impact of the Coronavirus on both the Chinese and global economies, have deepened.
The USD has historically been used as a “safe haven” currency by investors in times of global economic uncertainty.
This along with the current buoyancy of the US stock market and strong economic standing, has helped support the USD against any major downturn against GBP, compared to the other major currencies, which saw a sharp downturn last week. It has also boosted the USD to near three- and half-year highs against the EUR, which as discussed previously, is facing its own set of unique problems at present.
With the US economy outperforming expectations at almost every turn US President Donald Trump will have his eyes set on a second term, with the current economic upturn a major asset in his quest to increase his tenure in the White House.
Political stability is historically positive for the currency in question, so this is another factor to consider and one that may indeed help support the USD in the months ahead.
Looking ahead to later this week, where Wednesday’s employment data and Thursday’s Services PMI figures are both expected to show an upturn from last month, which historically have helped to support the USD’s value, if indeed they are released as the markets have predicted.
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