Sterling exchange rates have made minor gains across a basket of major currencies over the course of the trading week, despite U.K employment falling at the fastest rate in a decade, with the second Quarter of 2020 seeing 220,000 people losing their jobs. This was the largest quarterly drop since May to July 2009.
Despite this worrying news the pound remained steady over the course of the trading day, economic data of late has not had as bigger impact as you would usually expect, this is partially down to the fact that due to the covid-19 outbreak investors have come to expect bad news, and partly down to the fact that a large proportion of the world is in exactly the same position. Had this issue been localised to the U.K then this sort of news would had most likely led to significant sterling weakness.
It is also important to remember that these figures do not include what is likely to be millions of workers that are furloughed, on temporary leave or on zero hours contracts with no work. Universal credit which is a benefit for those on low pay as well as unemployed has risen by 117% since March.
A big worry is that as the furlough scheme is slowly wound down we may see a significant rise in unemployment and this could start to weigh a little more on the pound in the months ahead.
This morning saw the release of GDP (growth figures) for the U.K in Q2 of 2020. The figures released showed a contraction of 20.4% quarter on quarter following on from a 2.2% decline from January to March.
This news has not come as a great surprise and we have seen record quarterly falls in services, production and output for the second quarter of 2020. This drop in GDP is lower than Spain's historic GDP fall of 18.5% over the same quarter which is the lowest of the big four European economies and a lot of experts do still feel that there may be more to come, similar to the unemployment figures mentioned above.
On a positive note, the U.K economy has seen slight improvement in June, however overall economic activity is still a sixth below the level it was back in February.
One big issue that could impact euro exchange rates in the coming weeks is what is happening in Turkey at present. The Lira is experiencing continued severe weakness and there are fears of another run on the Turkish currency.
The Turkish Lira has lost 60% on average per year against the US dollar and recent issues in Lebanon coupled with the pandemic have raised concerns and led to the Turkish president battling to keep the Lira stable.
It is thought that the Turkish authorities had been trying to pin the value of the Turkish Lira against the dollar throughout July as concerns were mounting, but at a cost of $65 billion (the same sum the Turkish authorities spent from their currency reserves over the whole of last year), it seems that their potential to keep propping up the Lira is being eradicated.
On top of this, a large number of banks and countries in southern Europe have exposure to Turkey, so problems in Turkey escalating could impact the value of the euro.
Should we on top of the concerns around exposure see a big flow of money from this situation it is likely to further impact USD/TRL exchange rates, which hit a record high this week.
The large demand in dollars may impact the USD/EUR exchange rate and with GBP/EUR often tracking a similar pattern in times of great volatility this may present an opportunity to buy euros at a slightly better price.
We have minimal economic data out for the rest of the trading week so market sentiment, news on the pandemic, political news in the U.S and any Brexit news will likely be key to how GBP, EUR and USD round off the trading week.
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