The pound remains pressured as Prime Minister Boris Johnson remains in hospital fighting a much more personal battle with coronavirus. Dropping initially on reports of his worsening condition, GBP had managed to remain buoyant during yesterday’s trading.
Having been admitted on Sunday evening with “persistent symptoms” he was moved to Intensive Care at 7pm Monday evening due to a deterioration in his health and has remained there for a second night. At this point it is believed that he is using oxygen through a mask and has not yet needed to be ventilated.
Dominic Raab the Foreign Secretary has stepped up to act on Johnson’s behalf on an interim basis and Rishi Sunak has been named as number three in line should Raab’s health also deteriorate. There are now a reported 6,159 deaths in the UK and over fifty-five thousand confirmed cases.
It remains a risk to sterling in the short term should Covid-19 start to burn through the cabinet and the UK is left without an effective government.
The UK housing market is already feeling the strain of the pandemic as the BBC report a drop of 70% in property transactions completing throughout March as the spread of the virus made moving impractical and then impossible. The inevitable uncertainty with unemployment spreading through the UK is likely to have a more lasting impact on the property market as potential buyers lose confidence in their ability to commit to mortgage repayments and the banks are less inclined to lend despite record low rates on interest as illiquidity in the financial markets kick in. Knights Frank, a UK estate agent, are already predicting a drop of up to 3% on house prices through 2020.
The euro’s recent strength continues to be put in the firing line as the lack of action on its financial aid package to the eurozone places the single currency at risk of a sell-off. The coronavirus pandemic has exposed deep divisions in Europe, with EU member states arguing over how to tackle the economic impact. Italy and Spain have accused northern nations - led by Germany and the Netherlands - of not doing enough whilst Spanish Prime Minister Pedro Sánchez has even warned that if the EU fails to come up with an appropriate plan to help member states with the financial burden of tackling the pandemic, the bloc could "fall apart".
Meanwhile, the European Commission has already turned its focus on how to unwind the bloc from current lockdown and social distancing measures. Commission President Ursula von der Leyen will host an ‘orientation debate’ to discuss this later today.
The European Central Bank added to possible pressures on the common currency yesterday announcing a decline in profitability within the EU banking sector for 2019, it’s first drop for three years. Profits were hit by a reduction in lending margins through a cut in interest rates to 0.5% and a slowdown in eurozone growth through 2019 and mean that the banking sector enters the coronavirus crisis in an already weakened state.
Interestingly the majority of the least profitable banks were in Germany with an equity return of 0.08% well below the profitability of Italian Banks with an average return on equity of 4.85%. The euro currently trades at 1.1340 at the interbank level versus the pound, a move of over 8 cents since its March 19th high.
With a horribly gloomy projected death toll of between 100,000 and 240,000 previously predicted for the United States it was welcome relief when US Surgeon General Jerome Adams confirmed that he “absolutely” expects the final death toll to come in below this figure at his White House briefing yesterday as social distancing measures begin to show some success.
The outlook for the US economy however remains bleak as surging unemployment makes over $1.1 trillion of debt delinquency possible across credit cards, mortgages and vehicle loans according to a recent UBS report. Predicting a possible credit crunch similar to that seen in 2008 the team of strategists suggest that the recent $2 trillion aid package will not be enough to stimulate a surging recovery for the US economy.
However, optimism continued to filter in to stock markets following Donald Trump’s enthusiastic call to “win this and let’s get our country open as soon as we can," said Monday night during a coronavirus task force briefing. He announced that 10 potential treatments are in the trial phase, with another 15 therapeutics also likely to be tested. The USD continues to benefit from its safe haven status.
Please keep in contact with your Account Manager to discuss how currency markets are reacting to these twists and turns during such unprecedented times.
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