Further news of COVID-19 outbreaks once again continues to hit the headlines, with the majority of the spotlight being directed at Aberdeen and Manchester who have re-instated lockdown measures to counteract the recent spike in cases. As for the Scottish city, it recorded 79 cases within a few short days prompting the government to announce the host of guidelines including travelling less than 5 miles from home for leisure, not entering households other than their own and not going on holiday.
These events have seen a similar trend recently as it appears that large U-turns have been made to the government guidance for holidays, as the 2-week isolation period for UK holidaymakers to Spain was brought back in a few weeks back. In other sectors, gyms and pubs could also be closed as the number of cases continues to rise, suggesting the current lack of effectiveness in the policies instated by the government.
All this has redeveloped uncertainty that had eased off marginally when the lockdown measures were relaxed earlier this year, and is putting the strain back on Sterling exchange rates which haven’t managed to benefit against most of its major currency counterparts, all besides the US dollar that is. GBP/USD exchange rates have been doing exceedingly well at present with the rates gaining 8 cents since the end of June with this week moving to a 7-month high at 1.31.
Having said this, a lot of this volatility has not been as a result of any form of positivity within the UK. The Bank of England (BoE) Governor Andrew Bailey has stated that the UK could experience a recession which would shrink the Gross Domestic Product (GDP) by 9% this year, to rebound in positive growth next year. Unemployment is set to rise too with forecasts looking at around 7.5% in 2020 after the furlough scheme ends in October. This has been backed by the BoE saying that the government shouldn’t be keeping people in these pre-COVID roles and need to get them into current existing jobs for the current economic climate. This shift in the jobs market would “materially” increase unemployment levels which has the possibility to damage the pound later this year.
As for the most recent news from, the BoE, Bailey had kept the interest rates, as expected, stable at 0.1% which did not create any significant volatility for Sterling exchange rates. In upcoming news, the UK 3-month unemployment rates will be released this coming Tuesday which is anticipated to remain unchanged from the previous 3.9% level. It seems as though October is going to be the main driver of unemployment rates with the furlough scheme currently in place, but if levels come in away from expectation there could be some movement for Sterling. More currency volatility could also emanate from the GDP Q2 announcement on Wednesday, which is expected to be more positive than the previous reading of -2.2%, increasing to the anticipated thinner contraction of -1.8% suggesting that the UK is at least heading in a more promising direction.
Sticking on the topic of GDP figures, the Eurozone’s overall economic health, at least statistically, is looking less healthy as next Friday’s release is being revised from the last reading of -12.1%. Unless there is an unexpected shift in the markets, this could be damaging for the euro as the single currency has been very resilient up until now with many currency inroads being made since the pandemic first came into fruition. There has even been speculation that the euro could become the new top safe-haven currency as it continues to make significant strides against the US dollar. At present the EUR/USD level of 1.18 resides at more than a 2-year high not seen since May 2018, providing investors holding euros with some solid trading opportunities to take advantage of.
In other data releases out for the Bloc, the retail sales figures for July came in at 1.3% on Wednesday which stands on a far more positive position than the previous -3.1% recording. Next week will see the arrival of the Harmonized Consumer Price Index (CPI) data on Thursday, which isn’t expected to bring much movement for the euro as the previous result of 0% is expected to remain unchanged.
Big concerns for the euro could still lie ahead for the single currency later this year though as France faces its highest number of Coronavirus cases in 2 months. According to the BBC, France witnessed 1695 cases within 24 hours which has prompted larger cities to implement face masks outdoors in their busiest streets. Alongside this, France has more than 30,000 deaths from the Coronavirus making it the 3rd worst virus-hit country in Europe. Whilst the UK has now added Spain back to its quarantine list, France could well be on the cards as a serious consideration for the same path. This could disrupt the tourism industry yet again after the sector was ravaged by the previously imposed travel bans when Europe came to a standstill.
The US dollar, which had in the earlier months of the Coronavirus outbreak, been very robust and had seen the GBP/USD exchange rate collapse to an all-time low of 1.14 on 19th March, is now slipping away at a very quick pace against a lot of its main currency competitors. Even the pound, that is being afflicted by both the pandemic and Brexit, and the euro are at a 7-month and 2 year high against the US dollar respectively.
The economic outlook for the US has looked very bleak recently with its GDP Q2 figures coming in previously at an enormous 34% contraction, virus figures at 5m cases and 160k deaths and a presidential election campaign coming back into the picture ahead of its decision in November. In regard to who will be President for the next 4 years, a surprising 4% lead for Democratic front runner Joe Biden has polls at 49% against Donald Trump’s 45%. In normal circumstances, this would typically cause some movement for the USD even despite the fact that many have criticized Trump’s handling of the pandemic, which has added to the animosity felt within the US as it fights a losing battle in trying to keep the economy afloat.
Later today will see the all-important US non-farm payroll which is expected to plummet from its previous 4.8m to a predicted 1.6m according to FX Street.
This could bring with it some notable weakness for the US dollar even despite unemployment being suggested to drop from 11.1% to 10.5%, so all eyes now turn to this release which is certainly one to watch out for.
Next week sees the Food and Energy Consumer Price Index data on Wednesday, which sn’t anticipated to see much movement from its current 1% region. Friday could also see some currency exposure as it brings with it the Retail sales and the Michigan Consumer Sentiment Index to give some indications into investor confidence in the current financial climate.
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