Numbers of new confirmed cases across Europe seem to be rising sharply with numbers rising in Spain and France. New cases in the UK, Germany and the Netherlands have also grown but at a slower pace. Confirmed cases are also falling in the US, with the seven-day rolling average of new cases falling to 55,500 on 7 August from 67,400 on 23 July.
It seems like most countries are going with a policy of localised lock downs rather than anymore country wide lock downs. The latest of these in the UK were in Aberdeen and Preston which became the latest UK cities following a rise in the number of local cases.
Going forward, with the potential of a ‘second wave’ climbing and therefore the prospect of more widespread lock downs being brought in, new case numbers will be keenly watched and could well have an impact on currency values.
Here in the UK the services sector is a large contributor to GDP compared to most European countries, if lock downs were imposed once more, we could well see GBPEUR rates fall once more.
Saying that, with the news that Russia have approved the first vaccine there does seem to be something around the corner which could mitigate this risk. Saying that the country that gets to it first could well be seen to have an economic advantage and therefore have an impact on the currency in question.
Breaking news is that several countries have been added to the quarantine list coming to affect tomorrow morning. This includes France, Netherlands and Malta. People returning will have to quarantine for a 14-day period. There are reports that hundreds of thousands of UK citizens are on holiday in these countries currently and will be impacted on their return. France have warned that the UK’s decision would lead to ‘reciprocal measures’ across the channel.
Sterling rates have fallen from recent highs with news that the UK has fallen into a technical recession. Focus moving forward will shift to the length and depth of the economic contraction, meaning that economic data going forward could have a larger impact on the pound compared to recently.
The amount of international travel recently does however seem to be climbing once more, short-haul airline Easyjet is planning to operate at 40% of its capacity in the three months to September, compared to their forecasted 30% only a matter of weeks ago.
The UK housing market has reported to be back on track following the governments incentive package reducing stamp duties on lower value properties. UK house prices have, according to the Nationwide, recouped earlier losses and are back to January levels. Property listing site Rightmove has reported that the number of city residents contacting estate agents to buy a home in a village has more than doubled this summer.
We also saw the Bank of England (BoE) recently announce their latest banking policy and forecasts. The BoE seems to have become less pessimistic about the short-term impact of COVID-19 as they revised their forecast for Q2 UK GDP from a contraction of 28% to 20%. They did however suggest that they do not expect output to return to pre-pandemic levels until the end of next year.
Next week, UK data to keep an eye on is Production data on Wednesday and on Friday Manufacturing data as well as Retail sales which could cause sterling volatility. Economic data recently has not had as large impact on currency value, but with the UK in a technical recession going forward that may not be the case with a new focus on the return to economic health in the UK.
GBPEUR rates have been trading in a relatively tight range, without much movement between the highs and lows. Saying that, the talk of a second COVID-19 wave spreading across Europe with localised infections travel and economic performance may well change in the near future.
Europe’s economy seems to have returned however, orders for German-produced goods rose almost 28% in June. Overall retail sales in the eurozone rose 5.7% in June and are now above levels seen in the same month last year. Interestingly online sales in the eurozone fell 6.8% after four months of growth, suggesting people are returning to high street stores.
Next week data to watch out for remains the Consumer data on Wednesday and the European Central bank meeting minutes released on the Thursday morning.
In the US, politics have taken centre stage as the November election date draws nearer. Outside of politics we have recently seen strong unemployment data with figures falling from 11.1% to 10.2% in July with the US economy adding 1.8 million jobs in the month of July.
Next data to look out for is housing data on Tuesday next week and a central bank update on Wednesday evening.
GBPSUD rates currently sit towards a 6-month high, up towards levels we have not seen since prior to the pandemic.
The US dollars safe haven status remains under threat and with an election year it may well be that this level of uncertainty about the US dollars value this trend could continue, even in the face of string economic data.
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