Sterling, over the past few days and weeks, has been making consistent inroads against many major currency pairings. Take the GBP/EUR and GBP/EUR for example. After hitting multi-year lows of 1.05 on the interbank exchange they have now reached 1.13, at of the end of yesterday’s trading. This shows the volatility of the markets at present as the pound has regained nearly 10% of its value in the space of just a couple of weeks.
There are many Coronavirus-related factors that are playing into the rates at the moment. One such Eurozone-based element could be attributed to the social impacts faced in countries such as worst-hit nations Italy and Spain with 11600 deaths, 101k cases and 8300 deaths and 94k cases respectively. It appears that although the euro previously showed resilience to the developments of the virus, 4 of the 6 worst-affected countries globally are within the bloc and thus the affects could be starting to take hold within the markets.
It must be argued, however, of how long lasting these sterling gains will be as a variety of news articles such as from the BBC suggest that the UK is only a couple of weeks behind Italy in terms of virus developments. Therefore, should the pandemic fully take hold in the UK, the relief that GBP/EUR has seen recently could become short-lived or at the very least.
In other news, calls for a Brexit extension are being put to the UK from the European People’s Party (EPP) where previously PM Boris Johnson had stated that he was still looking to “get Brexit done” before the end of 31st December this year. Christophe Hansen for the EPP mentioned today that he hopes that “common sense and substance will prevail over ideology” as many from the committee believe that the UK would be put under serious strain to take on the effects of the Virus and long-term political uncertainty within Europe.
Very little data is out for both the UK and Europe both the rest of this week and next week with the exception of Europe’s Unemployment data out tomorrow morning. Any reduction in employment, which the markets are likely to be predicating given the current circumstances, could result in further drops for the single currency as sterling continues its recovery towards the 1.20 levels the markets saw back in February.
The US dollar, much like the euro over the last few days and weeks, has succumbed to weakness against a few choice currencies including the pound. Whilst earlier this month came a record 35-year low to buy USD, the GBP/USD has gathered some momentum as the markets hit a peak of 1.247 yesterday as it gradually makes its way towards the 1.30 threshold levels that had only recently been breached back in February before the effects of COVID-19 were baked in to the market rates
Of matters relating to the Coronavirus, the US last week overtook China with the most cases in a country which now stands at 176k and 3500 deaths. As we have seen and experienced some of the effects the virus had when the epicentre was within Europe, the US could come foul of many of the socioeconomic impacts that the pandemic has created. Unemployment being one such factor as it was recorded this week that a record 3.3m Americans, or 1% of the total population, filed for unemployment this week dwarfing the previous unemployment record set in 1982 at a meagre 695k. This could have a disastrous effect on GDP figures as some analysts believe that this figure could reach 20% total unemployment by the time the outbreak reaches its peak.
This afternoon shall reveal the extent of the US unemployment figures as the ADP Employment Change is released at midday. This will then be accompanied by the Jobless Claims release on Thursday which will further indicate the current state of the US.
Other big data releases which could generate some volatility for the Dollar will come in the form of the ISM Manufacturing Index and PMI equivalent today alongside the Nonfarm Payroll on Friday. This should be a data release to monitor carefully as this publication gives an in-depth insight into jobs, the state of current economic policies and the economy on a large scale, thus, could create some market movement should the figures fall away from market expectations.
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