Sterling dropped in value against all major currency pairs yesterday, with GBP/EUR falling by over 0.75% at its lowest point yesterday afternoon.
The fall in the pound’s value is being attributed to concerns surrounding the new finance ministers (Rishi Sunak) budget announcement which will take place on the 11th of March. Previously there had been hopes of an increase in fiscal spending to help boost the UK economy. These hopes are now being dashed as news broke yesterday that traders are now less bullish regarding the pound as they’re betting (short selling) that the currency could fall according to Reuters.
Fears surrounding the coronavirus are one of the main reasons that traders now have lower expectations of increased financial stimulus from Rishi Sunak, which is another example of how the virus is impacting global economic output. The FTSE 100, which is the UK’s leading equity index has dropped by almost 6% over the past week, hitting its lowest level of the year in the process.
With no economic updates due for release out of the UK this week, the markets will now look to next weeks Manufacturing, Industrial and Services data releases which will be released next week, at 09.30am on Monday, Tuesday and Wednesday respectively.
The government is also expected to publish its strategy for post-Brexit talks later today, after talks took place on Monday between Johnson’s new cabinet. The strategy is expected to be posted online and presented in parliament, so this could potentially impact markets depending on what’s being proposed.
Despite the pound being the biggest loser yesterday in currency terms, fears are mounting regarding one of Europe’s largest economies in Italy has the coronavirus flared up in Italy over the weekend.
There have been over 220 new cases of the virus in Italy and many of the wealthy Northern regions have been shut down. The Italian stock markets lost more than 5% on Monday which was the biggest drop in around 4-years, as there are now fears that the virus could cause a recession. Milan is the financial capital of Italy and it’s also based in the north, so authorities will be keen to try and stop the virus from spreading.
The country is the 5th most visited in the world and tourism accounts for 13% of the country’s GDP, and the sector has already been hit dramatically according to reports.
The European Central Bank's De Guindos and Lane will both be speaking today, but perhaps the biggest potential market mover is tomorrow's inflation data which is due out of Germany at 13:00.
After hitting a 2-week low on Tuesday the US dollar index rebounded yesterday, which coincided with a rebound in the value of equity markets also. Moving forward though we could see investors remain cautious, especially as yesterday Latin America reported its first case of the coronavirus which prompted the U.S. Centres for Disease Control and Prevention (CDC) to urge Americans to prepare as a pandemic is now likely.
There has also been an increased amount of bets that the Federal Reserve Bank will opt to cut interest rates again in response to the spread of the virus outside of China. At the moment the chances of a rate cut in June sit at 79.2% according to CME Group’s Fedwatch tool.
It could be a busy afternoon for US dollar exchange rates as Gross Domestic Product, Personal Consumption, Initial Jobless Claims, Capital Goods Orders and Durable Goods Orders are all set for release at 13:30, so compared with other currencies it could be all eyes on the USD as the week ends.
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