The latest data suggests that UK cases of Covid are climbing once more. The UK officially recorded 10,043 new cases in the week to 4 September, up from 8,088 the previous week. Further travel restrictions have been implemented and at the end of last week confirmed different restrictions for different members across the UK, in particular with passengers returning from Portugal.

The success of the ‘eat out to help out’ has been widely publicised as people return to a form of ‘normality.’ Saying that, the Bank of England suggested that the return to the workplace may well take longer, having an impact on the high street and therefore UK GDP. 

The winter is coming and many are wary of what it may bring. As COVID cases continue to climb even though the death rate has fallen, could we be in a ’casedemic over a pandemic?’. If we see new rounds of larger lockdowns the impact on the economy and therefore the pound could be high.

UK Economic Data in the Spotlight Last Week

Coronavirus and Brexit Could Cause GBP Volatility

Brexit talks remain one of the ‘hot topic’s’ impacting sterling value. Any change in narrative about the potential deal that the UK will have with its largest trading partner has the potential to have a quick and long-standing impact on the value of the pound going forward. As of Friday, it was reported by The Times that senior downing street figures put the chances of a deal at 30 to 40 percent. Arguments are still happening between both parties about state aid and other key issues including fishing rights. Boris Johnson is now expected to come out stating that if there is no movement by mid-October, both sides should ‘move on’.

Outside of Brexit news, economic data remains a driving force for sterling’s value. UK retail activity recently showed a slowdown in August as retailers were reducing head counts at the fastest rate since February 2009, according to a CBI survey. An example of which came from Pret a Manger who confirmed they are planning on cutting one-third of its workforce, around 3,000 jobs in the near future. The CEO highlighted the impact of Covid to their business stating, “the pandemic has taken away almost a decade of growth at Pret.”

The travel industry, which represents a large proposition of the overall GDP of the UK, has also been widely impacted. Gatwick passenger numbers have now dropped by two-thirds in the first half of the year. The airport also announced recently that it will take four to five years to return to pre-crisis passenger levels.

The week ahead focus will be on an update from the bank of England on inflation tomorrow along with Manufacturing date and Industrial data both released on Friday.

Euro Rates Gain Slightly Against the Pound

GBPEUR rates also ended the week slight down on Friday. Rates now sit towards the best levels seen since early June giving buyers nearly the best prices seen in 2 months and over 1.5% gain compared to just 2 weeks ago.

With Europe having been at one point the centre of the pandemic they were also some of the first economies to return to work. Most of the block’s economies are also more dependant on manufacturing over the UK. Saying that consumer confidence may perhaps still be low. Money deposited in bank accounts were reported last week to have surged in the euro area, growing 10.3% in the year to July. Pointing towards a view that consumers and businesses may well now be more cautous and hold onto their cash.

We also saw the euro area unemployment rate rise to 7.9% in July from 7.7% in June, this was in line with regional government furlough schemes limiting job losses. Plus, there was news that euro area retail sales contracted by 1.3% in July following growth of 5.3% in June when lockdowns were originally lifted.

This week tomorrow and Thursday are key dates with European GDP figures released on Tuesday and the European Central banks interest rate decision released on Thursday. Both are traditionally large events on the currency market and have the potential to influence exchange rates.

US Dollar on the Up Due to Falling Unemployment Levels

US Dollar on the Up Due to Falling Unemployment Levels

GBPUSD levels ended last week down slightly but ignoring the last 7 days still sits towards the best levels seen since March representing a 6-month high. The dollar strengthened after the narrative changed on the debt levels in the US. Congress is at a deadlock and cannot agree on an extension on the debt ceiling which could well play into the political world with the US election only 2 months away.

A recession has been confirmed in most parts of the world following the pandemic. US corporates’ profits were down 20.1% in the second quarter compared to the same quarter last year it was reported last week.  We also had confirmation however that weekly new jobless claims fell in the US to just over 1m, a fraction of that seen at the height of the pandemic. On Friday US firms confirmed they were rehiring staff as unemployment fell below 10% for the first time since the pandemic began, 8.4% was the official reading. US consumer confidence also fell to its lowest levels since 2014 in August following government income support expiring. Positive signs were also seen with US manufacturing PMI showing an increase sharply in August, to the highest rate of expansion since November 2018.

We also recently saw the US Federal Reserve signalled a shift in its approach to tackling inflation within the US. It will now target an average of 2% inflation, rather than a fixed level of 2%. This move will give the Bank more flexibility to keep interest rates lower for longer it would seem, helping to stimulate growth and reduce unemployment. This again added to the USD strength last week.

This week Thursday and Friday are the bigger economic days to watch out for with Jobless data due on Thursday and Consumer Price index on Friday. Both are expected to fall which could well impact the USD value this coming week.

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