It's been a positive 48 hours for clients looking to purchase euros as mid-market exchange rates have increased from a 3-month low of 1.09 and increased to 1.11 at the time of writing.
UK Prime Minister Boris Johnson's speech earlier in the week gave a clear picture what the Government plans to spend in a bid to stimulate the economy, which was well received by investors. It will be a matter of time to see if the PM's slogan of ‘Build, Build Build’ comes to fruition. Furthermore, Bank of England economist Andy Haldane’s comments regarding a V shaped recovery have also been taken well by the markets, however he did show concern about unemployment in the months to come, when the Government eases the furlough program.
Unfortunately for clients looking to purchase euros, the good run could be coming to an end, as this week's Brexit talks have ended a day early due to deadlocked negotiations. Chief EU negotiator Michel Barnier told the press that ‘after four days of discussion serious divergences remain’. Reports are suggesting that there are three main areas of concern which are: level playing field provisions, fishing rights and dispute settlement mechanisms.
Over the last 3 years the UK has been close to crashing out of the EU numerous times. At these points’, sterling tended to be trading lower against the euro.
Therefore, in the weeks and months to come, if the negotiations stay deadlocked you would expect the pound to remain under pressure against the euro. However, if a breakthrough occurs this could be the start of a good run for the pound against the single currency.
The UK announced last month that they will not extend the trade talk discussions an additional 5 weeks of face to face negotiations have been agreed for July and August. If you are making a currency transfer involving sterling and would like regular updates regarding the Brexit negotiations, get in touch with your account manager who will keep you informed about the factors likely to impact your currency exchange.
Shortly the UK will release their latest Markit Services Purchasing Manager's Index (PMI) data. This gives a good indication of the current state of the economy. A reading above 50 is seen as positive, however reports are suggesting the number will be released at 47.
Yesterday the US released their latest Non-Farm payroll numbers and 4.8 million jobs were created. In normal circumstances this could have provided a strong boost for the US economy and consequently the dollar, however the market reaction was limited. Since the US went into lockdown due to COVID-19, unemployment has been rising. Even with the positive numbers yesterday and last month, 14.7 million Americans have lost their jobs due to the pandemic. US President Donald Trump spoke yesterday in the White House and told the American people that unemployment had dropped by 2%, the economy was roaring back and coming back extremely strong.
He went on to provide a detailed analysis of the jobs created in each sector, with the 2.8million jobs created in Leisure, hospitality, and Retail.
The problem the US President has is that COVID-19 infections are increasing daily in states such as California, Florida and Texas. Some states have even stopped the easing of the lockdown which is a main concern. If the US are unable to maintain the virus due to easing their lockdown to early, in a bid to get the economy moving this could have major repercussion. The 2.8million jobs created and many more could diminish if the US end up in full lock down like we saw earlier in the year. In addition, the Federal Reserve Chair Jerome Powell told the markets that the economic outlook is uncertain, and it would all depend on containing COVID-19 cases.
With the US dollar currently being used as a safe haven currency, global events including what happens in the US will have a direct impact on sterling exchange rates. For more information on how the US dollar may impact your sterling currency transfer feel free to contact us here at Foreign Currency Direct.
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