Prime minister Boris Johnson returned to office yesterday, apologising for his absence and thanking the country for respecting the social distancing measures.

Johnson added that he believed the UK is past its Coronavirus peak but warned of maximum danger if lockdown measures are relaxed too soon. Preparations for an exit plan are underway and the prime minister is keen to fire up the economy, although the government is proceeding cautiously. The danger being that if current restrictions are lifted too early, we could risk a second wave of the virus, causing greater economic damage. Johnson was clear that he wants to work with opposition parties and confirmed that further details would follow in the coming days.

Sterling climbs as lockdown measures are eased

The Prime Minister will also tackle Brexit. Michel Barnier, Chief Negotiator for the EU, who also suffered from coronavirus, was less than pleased with last week’s lack of progress, citing his frustration on Friday at the UK’s lack of will to compromise or to extend the transition period.

The current transition period runs to 31st of January 2021, but any extension must be agreed prior to 30th of June. Boris has repeatedly ruled out the possibility of an extension, but will the Coronavirus crisis change his mind? An extension of the transition would likely boost the pound.

A global reduction in Coronavirus cases and death numbers, particularly in Europe, has contributed to improved market sentiment. 

The positive sentiment is linked to hopes that there will be a gradual easing of the lockdown measures. Some European countries have already confirmed the easing of restrictions, and with more countries expected to follow, investors’ risk appetite is increasing. Nevertheless, a cautious stance is visible as easing restrictions too soon could cause a resurfacing of the virus and knock market confidence.

Thursday's ECB Meeting

The European Central Bank (ECB) will meet on Thursday although most expect the ECB will leave its quantitative easing programs unchanged as it awaits new data and forecasts, before looking to act in June. Any surprise increase of the ECB’s stimulus program could boost the common currency.

Eurozone Economic Data for April to be a Key Driver for Euro Rates

Christine Lagarde helped ease pressure on the euro as she oversaw the launch of the €750 billion Pandemic Emergency Purchase Programme; although this goes nowhere near far enough to rescue the eurozone. Europe’s leaders are still at odds over how to fund the bail out, with countries in the south calling for Coronabonds, a form of debt mutualisation where nation states split the burden, and countries in the north calling for nation states to borrow independently. Lagarde herself, supports the one-off use of Coronabonds, although has a task on her hands if she’s to convert the hawkish camp led by German Bundesbank President Jens Weidman.

Following strict lockdown measures across Europe, Italy, Spain and Belgium have signalled cautious moves to open part of their economies while France is expected to announce easing measures this week after more than one month of lockdown.

Investor Move Away From Safe Haven Dollar as Global Confidence Grows

The US dollar weakened as market optimism increased and investors moved away from the global safe-haven currency. The Federal Reserve meet on Wednesday although the Fed recently addressed liquidity issues with an unprecedented $2 trillion rescue package and interest rates have already been slashed to 0-0.25 per cent. Instead, markets will likely look towards the US’s exit plan as the Coronavirus’ curve in the US also begins to flatten. US annualised GDP for Q1 will also be released on Wednesday, where there is a prediction for a 4.1 per cent contraction, however this will only be the tip of the iceberg as the economic slump will reflect significantly more in Q2’s reading.

Following criticism, a US official has said that the Whitehouse is planning a Coronavirus testing strategy, which will see at least 2% of residents in each of the 50 states tested. The intention is to focus on the vulnerable and those deemed most at risk. The Trump administration has been criticised for its slow response to widespread testing to track and control the virus and this latest strategy will push the responsibility onto individual states

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