As we move into the final days of April 2020, there are some key pieces of economic news to be monitoring with real potential to impact the currency markets. Of course, any news is going to be seen in the shadow of the continuing Coronavirus pandemic, now responsible for close to 200,000 deaths and over 3 million reported cases globally, some truly scary numbers. Thankfully, despite the continued concern over outbreak and reinfections, there is some light ahead at the end of the tunnel with many countries outlining plans to ease restrictions.
The Spanish Prime Minister Pedro Sanchez has stated that by the end of June, he hopes that the country can enter a stage of ‘new normality’. France has also announced some easing measures with restrictions being eased from May 11th, allowing many shops and schools to reopen.
For the UK, Matt Hancock, the health secretary yesterday reiterated a five-stage plan to allow restrictions to end. The five tests to modify lockdown measures are that the NHS is fully kitted out, rate of deaths are declining, rate of infections declining, operational challenges for NHS (eg PPE) will not be stretched and finally risk of reinfection low.
Germany has also been easing restrictions although Angela Merkel has stated should the rate of infection go above ‘R1’, then the restrictive measures might have to be reintroduced. By this measure, anything above R1, means the reinfection rate is positive.
Coronavirus looks set to remain a key focus for financial markets and the global economy ahead, it appears the sudden stop in consumer and business activity will only be neutralized after a slow and gentle path to future prosperity. An important reason for easing measures gently is that any sudden quick spike in the number of new cases would place a huge burden on overstretched medical operations globally, and make the dire economic situation even worse by prolonging the lockdowns.
We have seen a loose correlation between the performance of certain currencies and progress in combatting the Coronavirus. Any signs that progress is being made to bring down the number of new daily reported cases has helped some currencies to find support.
More broadly ‘risk sentiment’ in financial markets has been a key driver for many currencies and currency pairs. Fundamental behaviour in the currency market where safe haven currencies like the US dollar rise on uncertainty whilst riskier currencies like the Rand fall have all been witnessed.
The key economic data begins today with US GDP (Gross Domestic Product) data at 13.30 with a prediction of -4% for Q1 annualised data, paving the way for the predicted recession. Then in the evening, we have the US Federal Reserve’s Interest Rate decision by the US central bank. Whilst no change in the current policy is expected, it will be very interesting to see how the world’s largest central bank is viewing the current situation and outlook ahead.
As explained market ‘sentiment’ has been a key driver on exchange rates in recent weeks. Essentially investor attitudes to the likely outlook and feelings towards progress being made have felt more important than economic data at times. Tonight’s meeting will be closely monitored to determine how the US is currently viewing the outlook and whether it will join in seeing more positive paths ahead.
The United States has been the worst effected country globally now with total infections well past 1,000,000. There has been growing political wrangling over the appropriate responses, with Trump blaming China for the outbreak and also being caught up in some quite damaging press briefings where it is implied the US President encouraged people to drink bleach to combat the virus. Please note, Foreign Currency Direct does not under any circumstances suggest you drink bleach!
After the Fed tonight we have the latest European Central Bank Interest Rate decision tomorrow, which again may carry significance from the commentary of the ECB team. Christine Lagarde, the President of the ECB has been responsible for a series of measures to combat the negative economic effects of the Coronavirus but some are wanting more from former IMF Managing Director.
Senior European institutions have been in the firing line over the response to the COVID-19 pandemic and a perceived lack of failure to support some of the worst effected member states, namely Italy and Spain.
Anti-EU sentiment has increased and could be a cause for concern in the future. A very sensitive topic is the issuance of debt by Eurozone members with each nation valued independently, and not as one whole. Because of this, Italy and others pay more to borrow money to fund their day to day government and hence also the recovery. This makes a tough situation even tougher on countries like Italy.
In more normal times having the Fed and ECB meeting within 24 hours would be major news and whilst appears bound to attract attention, the currency markets may well also be taking its cues from developments in easing restrictions globally and any signs of how the world is combatting the fight against the Coronavirus.
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