The pound’s recent upbeat performance was maintained against the euro this week, with fresh highs of 1.1511 being reached on the interbank rate. Sterling has benefitted from improved confidence relating to a series of measures taken by the Bank of England and the UK Government to prepare the British economy for the economic challenges ahead.
The scale of those challenges is gently becoming more apparent, with the lockdown being extended by three weeks yesterday. The Office Budget Responsibility (OBR), the government’s own independent forecaster reported this week Gross Domestic Product (GDP) for the UK could shrink 13% for the whole of 2020, as the world enters the worst recession since the Great Depression in 1929, as predicted by the International Monetary Fund (IMF) this week.
This week was light on economic data which might have perhaps seen sterling get the benefit of the doubt, as attention has been largely on important developments in the Eurozone and key Chinese GDP data.
In a possible taster of the type of the data the world might start to see ahead, Chinese growth data for the first quarter of this year showed a 6.8% decline. The markets haven’t taken it too badly, and this is perhaps because of other more recent data suggesting a rebound, with the Economist reporting 80% of Chinese factories are now back to operating capacity.
Conflict within the Eurozone over how best to deal with debt obligations ahead continued to see the euro weaken, helping GBPEUR to fresh highs. Another possible reason for sterling continuing to enjoy some strength and support is expectations the Brexit transition would be extended from the end of this year, although this has been ruled out by the UK so far.
The pound has risen from many of the lows experienced in March but with Coronavirus still impacting the health and economic picture for the UK and the global economy, there could be more challenges ahead.
The euro has continued to face scrutiny from the markets, with investors concerned about the ability of the Eurozone to recover successfully from the negative health and economic effects of the Coronavirus. Last week ended with Eurozone leaders agreeing a rescue package designed to help indebted nations which are struggling in the face of the Coronavirus to access vital funding. The European Stability Mechanism (ESM) is now accessible for any Eurozone member to request up to 2% of their GDP to help fight and fund their Coronavirus response. A key feature of the agreement is that there were no conditions attached for the funding to become available, thereby helping streamline the availability of the funding.
The measures, whilst welcome, did not neutralise the more recent euro weakness, as whilst it has addressed the more immediate concern of shorter term funding, it did nothing to address longer term financing of debt. French President Macron is now openly calling for much greater integration of debt amongst Eurozone countries, a move unpopular with German taxpayers.
Today is the release of latest Eurozone inflation data and might yet expose further frailties in the Eurozone economy. Inflation has been a key indicator used by the market and the European Central Bank to gauge the setting of interest rates, which can often be a market mover for Euro exchange rates.
Despite the concerns for the euro, every time the Eurozone has found itself pressured in history by such debt concerns, it seems to have found a way to convince markets of the overall commitment present to continue the single currency.
This topic looks likely to be a key feature of the single currency ahead as the world prepares for a significant slowdown, and the Eurozone must weather some difficult times.
The US dollar had strengthened mid-week again as investors were reminded of the its status as a safe-haven currency. A series of reports this week have underlined how the economic impact ahead of the Coronavirus could still be quite significant, as the IMF predicted the world’s deepest recession since the Great Depression.
This had encouraged a gentle flight to the safety once again of the US dollar, which had previously lost ground, as investors backed the measures being taken globally by central banks and also governments, to support the global economy in the face of the crisis.
The end of this week sees a mixed picture with reports that pharmaceutical company Gilead is advanced in their testing of a vaccine. This does contrast with the realisation that the national lockdowns in place globally are not likely to end as quickly or suddenly as some might have hoped. It appears the easing of restrictions will be more gradual as news reports suggest cases are slowing and it is seen that allowing freer movement of citizens won’t just trigger a more worrying second wave that just prolongs the health and economic turmoil.
In a sign of the harm being done to the US economy, this week it was reported 5 million more Americans signed on for jobless claims last week, taking the total to more than 20 million in the last month. This is likely to become important in the future for Unemployment data, a key metric by markets to determine the value of a currency.
The US is being carefully watched since it is the world’s largest economy and its response both politically and economically can shape global events. Keep an eye on the GBPUSD rate or speak to our team about the full implications of the latest global news that can shape US dollar exchange rates.
The pound to New Zealand dollar interbank exchange rate has this week been back close to the highest it has been since the EU Referendum in June 2016, having recently reached highs of 2.0934, very close to the near 4-year high of 2.1018 reached on the 1st April.
The New Zealand dollar has been much weaker since the onset of the Coronavirus, since it relies heavily on trade with China and Australia, two countries which have seen economic disruption this year because of the Coronavirus.
This poor news was underlined with the release of the latest Chinese GDP data, showing a decline of -6.8% for Q1 of this year, its lowest in 40 years. The reaction from the New Zealand dollar has not been too dramatic, and this might be because the news was widely expected in many senses owing to recent global events.
Nevertheless, the news paints a concerning picture for the region, although it should be noted this is for the period of January to March, with reports that in April up to 80% of Chinese factories are back at operating capacity.
The pound has been trading more strongly against the Kiwi dollar too, owing to the support dealt to sterling by the strong Government response to fight the economic effects of the COVID-19 pandemic.
However, this week was quite light on UK data and once we learn of some of the more up to date data for the UK economy in this difficult period, sterling could be at risk once again.
GBPNZD rates are reacting to the latest domestic news for both countries, but also market sentiments towards global trade and the world economy. For a full overview of the pairing and all the events to be considering, for the New Zealand dollar or any currency of interest, please get in touch with our team, or subscribe below to receive detailed monthly reports on the global currency markets.
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