Sterling exchange rates have continued to sit within a tight range of just over 2% against the single currency over the last few weeks, this being between 1.1050-1.1280 on the inter-bank exchange rate. This however has the potential to change significantly over the coming days and weeks as a result of a series of updates scheduled on the main events which are having an impact on sterling value.
Tomorrow several economic releases are scheduled from the UK including Trade Balance, Industrial Productivity and GDP figures. The GDP figures are going to be very keenly looked at to determine the economic performance of the UK under lockdown. FX Street has the forecasted release showing a -18.4% contraction with several other forcasts all expecting a sharp contraction. Only on Wednesday the Office of Economic Cooperation and Development (OECD) predicted that the UK will suffer a more devastating economic blow due to Covid-19 than other developed nations. They predicted a slump of 11.5% with up to 2.4 million jobs being lost. They estimate the impact on the UK could well be near to twice as much as the global contraction forecast of 6% as a result of the economic dependency on services.
It has now been confirmed that the total number of furloughed staff in the UK has risen to 8.7m, representing over a quarter of the workforce. Data recently also showed that the first impact on UK housing prices has been negative with UK house prices falling by 1.7% in May compared to the previous month.
Interestingly other reports showed a decline in UK consumer debt which paid down a net £7.4bn of debt in April, this has been widely attributed to consumers trimming credit card spending.
On Friday last week the UK Treasury stated that they were looking into announcing a further package of additional measures to help support the economy in July. This however could well be pushed back further into the autumn until there is more clarity on the position of the UK economy and Brexit.
Next Thursday, classed as Super Thursday, we also have the latest updates from the Bank of England (BOE), with updates expected on interest rate decisions, growth forecast and inflation. Eyes here will be focused on the tone used by the bank about future interest rates, in particular their appetite for negative interest rates. The BOE initially said it was not “planning or contemplating” negative interest rates, Andrew Bailey, its governor, in May however told MPs that the idea was under “active review”.
We also have the Brexit talks moving forward and closer to the scheduled deadline for decisions. Brexit could well have a large immediate impact on market levels with breaking news potentially being released over the coming weeks.
This morning the outgoing head of the Confederation of British Industry suggested that a no-deal conclusion within the current timelines would be a disaster for UK business. She goes on to highlight that finances and stockpiles have been depleted as a result of the lockdown and with a strain on time few businesses are well placed to be in a position to be ready for a no-deal exit.
Last week the German government announced their plans to launch a post-COVID stimulus package worth €130bn, becoming the first major European government to do so. The plans consisted of extra spending, support for business', tax cuts including a temporary cut in VAT plus a payment of €300 per child.
Germany is keenly watched for the health of Europe as a whole. Unemployment rose in May to 6.3% from 5.8% in April. It also recently reported a large fall in new manufacturers orders of 25.8% in May.
A week ago the European Central Bank (ECB) announced a large increase in its programme of quantitative easing following Covid-19. This was by a further €600bn which was larger than economists had expected.
Next week Trade balance data is released on Monday which could have an impact on the value of the euro.
GBPUSD rates have been climbing higher on almost a daily basis now, yesterday it hit 1.28 on the inter-bank price, the highest seen for nearly 3-months in March. As the world returns back to business following the lockdown with Covid-19, it would seem traders have been selling their safe haven USD’s and moving into other currencies.
Recent jobless figures from the US really surprised the market exceeding any expectations showing that the US had added 2.5m jobs in May. The overall unemployment rate fell to 13.3% from 14.7% against the view that it would rise to almost 20%.
The rise in jobs is against an additional 1.9m initial jobless claims in the last week of May. It means that the total amount of new jobless claims since mid-March when Covid-19 hit has reached 42.6m. Later today is further Jobless data being released with business confidence data due tomorrow afternoon. Election this year in the US and these topics are likely to remain key election points of debate.
Last night the FED gave their latest updates announced no change to interest rates, suggested they would support the Covid package and keep interest rates at the low band through at least 2022. Nothing to do with the FED’s ballooning balance sheet as the US debt-to-GDP ratio is over 1.20%. Exceeding the highs in the 1940’s Great recession when inflation was near 20%. $26 trillion is debt.
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