Yesterday the GBP/EUR interbank rate found itself back above the 1.10 level following a boost in the FTSE 100. Analyst at the moment are suggesting that a boost in the UK stock market may indicate slightly renewed glimmers of confidence in British business which could help sterling. However, by the end of the day the ground gained was mostly given back and this morning we find the interbank rate around the mid 1.08’s.
These large 1-2% daily swings could be set to continue as markets and investors try to fully understand the implications of the global outbreak. Adding to all the challenges as we approach the end of the month, we could start to see unexplained currency movements that often occur around this time. There is no real way to determine which way the markets might move but often sterling can take the brunt of things. As we approach the end of the week it seems a long way back to February 18th when the GBP/EUR interbank rate was sat just above 1.205 and really goes to show that over the next month that anything could happen.
At lunch time today we will hear from the Bank of England on their latest interest rate decision. There isn’t expected to be a change in interest rates today, however the commentary we hear could have an effect on the market. It will also be the first release from new Governor Andrew Bailey who has probably had a slightly more intense first few weeks than he anticipated following two cuts so far this year with the interest rate currently at a record low of 0.1%.
The European Union leaders will today hold their third video conference on what will be the best way to resolve the crisis across the block. Currently individual nations are being left to come up with their own plans to deal with the spread of the outbreak with much of the EU on lockdown. At the moment the euro from a financial point of view is being held with high regard and seems to be considered a safe place.
However, the EU has been particularly slow to devise a plan to tackle the outbreak as the countries can’t agree how to spend funds. The EU has a bailout fund called the European Stability Mechanism which has a hefty €410bn at its disposal, however this is a one-time fund. The challenge is where should that money be invested in order to reduce the economic shock. Spain, Portugal, Greece and Italy were already struggling before the outbreak and will no doubt have significant consequences from the coronavirus crisis that will see them all even closer to the brink.
The likes of Netherlands, France and Germany all believe the funds will be better purposed to help create further wealth as they’re the ones making the money. The timing of the stimulus is also key as releasing the funds now may mean in three months there is no more. The EU at the end of the coronavirus will certainly have some rethinking to do as there is so much money being used towards bailouts.
One of the US economy's biggest data release will come this afternoon as US Jobless Claims data is expected later today. The forecast suggests there could be as many as a million new claims to have been made which is one of the highest figures ever. This is down to the effect of coronavirus as huge numbers of jobs have been lost in the last few weeks. Secondly, the Gross Domestic Product data for Quarter 4 is set to be released and is still expected to remain at 2.1%, however following the last few weeks which may not be factored in that could fall below expectations.
Any clients holding US dollars are able to change their currency close to decade highs. Over the course of the day we will no doubt see significant swings with data and statements constantly changing the landscape.
The US Senate last night passed a bill to release $2tn of support to help to keep the economy alive. Workers earning under $99,000 will receive a $1,200 cheque through the post and $500bn will be made available to businesses through a lending program. This is the biggest ever package offered by a US Government and over the next few days is likely to be made into law and could help investors have renewed confidence in the US Dollar.
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