Sterling is finishing the week higher against many currencies as optimism over the global progress made against the Coronavirus gathers pace. Whilst the situation in the UK is still of concern, Boris Johnson said yesterday that the UK was now ‘past the peak’.
The UK has been badly affected by the virus with over 170,000 cases and 26,000 deaths. Lockdown measures in place since the end of March have also had a detrimental effect on the economy. However, ever since Rishi Sunak, the UK Chancellor announced a series of measures to combat the economic effects, including paying wages of ‘furloughed’ staff and providing business loans, the pound has staged a recovery from the March lows.
This was a week that saw little fresh UK economic data but there were two key interest rate decisions by the United States Federal Reserve, and the European Central Bank. Continued global optimism over the way forward and an easing of lockdown restrictions saw the US dollar losing ground and helped the pound to rise and find support.
Whilst the US Federal Reserve were cautious about what lies ahead, their strong commitment to keep interest rates low until employment has fully recovered embodied some of the confidence being displayed by central banks, to help light a path to future prosperity.
The pound has been loosely rising and falling on sentiments connected to the global outlook on combatting the crisis, since the UK will be reliant on a healthy and prosperous global economy to bounce back. As sentiment rises as it has this week, the pound has found some support, when that confidence has dipped, then so too has the pound.
Today at 09.30 am we will have had the latest UK Manufacturing data, which will provide a snapshot of the sector for April. This release, like many in May, will provide some of the first full evidence for economic performance in April, the first full month of lockdown, and in providing such vital insight into the shape of the British economy in this difficult period, could well prove a driver on sterling exchange rates and other pairs too.
Interbank levels on GBPEUR are currently 1.1504 and on GBPUSD 1.2591, please contact us to learn more.
The Euro dropped to fresh lows against the pound on the interbank rate, with GBPEUR rising to 1.1532 and falling to 0.8670 on EURGBP. Despite the single currency coming slightly unstuck against the pound, the bad news for the Eurozone is not necessarily great news for the pound either, since the UK relies on strong trade with its European partners. Lower economic activity in the Eurozone will also likely lead to lower economic activity for the UK.
The positive news on the easing of restrictions ahead is much welcome, France released a map showing which regions would be allowed to ease more gently after May 11th, whilst for the Spanish, a loosening of rules governing exercise and some detailed plans on the gentle opening of restaurants and bars towards the end of June provides some welcome light at the end of the tunnel for Spain.
Despite the good mood on easing the lockdown measures ahead, there are much wider and greater questions about how the recoveries will be financed. With the month of May providing the latest economic data for April, the first full month of the lockdown, it will be very interesting to see number what the data says, and whether any fresh responses by government or the ECB will necessary.
Even the merest discussion of these two final points would surely have the potential to trigger some increased volatility for the Euro. There is no key Eurozone data today but look out for UK Manufacturing data this morning for GBPEUR, and US Manufacturing in the afternoon for EURUSD.
The greenback continues its status as not only a safe haven currency, but also a barometer of sentiment towards combatting the Coronavirus crisis. In a nutshell, when it appears there is progress being made in easing restrictions and tackling the virus, the US dollar has been weaker. When the progress has stumbled we had seen the dollar rising again, adopting its well established position as a safe haven currency.
This weakness of the US dollar towards the end of this week is a display of investors giving up the safe haven positions that they had taken in response to previous uncertainty and investing elsewhere for potentially greater returns.
The US Federal Reserve met this week and in committing to keeping interest rates near zero until employment was fully recovered, dealt the market a further signal of support, to aid the rising confidence.
Despite a general optimism of a path forward there was some dire economic data releases, a taste perhaps of future news to come. US GDP (Gross Domestic Product) data was released at -4.8% for Q1 of this year, which did initially see the US dollar gaining as its raised some concerns about the economic outlook, reflecting its safe haven status.
For the labour market too, the total number of Jobless Claims now stands at 30 million for the period of the lockdown. This is a worrying number and bearing in mind the Fed’s comments on relating interest rates to rising employment, means interest rates could remain low for some time in the US.
It does appear now to be widely accepted we are in for a global recession and whilst there appears likely that there is going to be more poor data ahead, for now the market is focusing on some of the more positive news regarding the lower rates of infections and easing of restrictions.
Strangely, many stock markets had a record month, with the Financial Times reporting US stocks have had their best monthly rally since 1987. This is all on the back of the signals economies globally are putting in place plans to ease the restrictions and also because of the significant increase in financial liquidity by central banks around the world.
Key economic data today for the US will the latest Manufacturing data released at 13.30, please contact us if you would like to learn more.
The New Zealand dollar has been appreciating against many currencies in the last two weeks, as it demonstrates some of the best led responses to tackling the Coronavirus pandemic. With the country having embraced lockdown measures at an early stage, it has only recorded 19 deaths and just over 1,000 cases.
The New Zealand dollar can be termed a riskier commodity currency, in that it will rise and fall according to global sentiments on trade and the global outlook. For now, that outlook has been closely linked to the progress of the global economy against COVID-19, and with some renewed optimism on progress this week, the Kiwi dollar has fared well.
Any rally in the New Zealand dollar against sterling stalled to the end of this week however, with GBPNZD interbank rates reaching 2.0291 at their lows. The rebound from this low to the current 2.0535 was triggered by news that the UK has in the eyes of Boris Johnson, ‘past its peak’, setting the UK on a more positive outlook too.
Further ahead there might be reasons for concern on the New Zealand dollar, with Westpac bank earlier this week forecasting the RBNZ (Reserve Bank of New Zealand) might need to look at negative interest rates in the future.
New Zealand also have in place a 33 billion NZD Quantitative Easing program, which could be another cause for Kiwi weakness ahead, if it is likely to be increased as the Westpac report hinted. Generally, it is said a lower interest rate will weaken a currency by making it less attractive to hold.
With the RBNZ holding interest rates at record lows currently, this will be a topic to closely monitor ahead and might well influence GBPNZD exchange rates in the future. The response by the Kiwi will also be linked to continued developments in the global fight against the Coronavirus and whether or not some of the optimism that has helped the Kiwi rise lately is misplaced or a false dawn of a return to a state that might be perceived as ‘normal’.
For more information on the many factors driving the New Zealand dollar please speak to our team.
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