The pound has gently rebounded to begin July today on a slightly more positive footing with GBPEUR interbank levels having risen back over 1.10 and GBPUSD interbank rates hitting 1.24 yesterday. This is up from the recent lows of 1.09 which was a three-month low on GBPEUR interbank rates and 1.2256, a five-week low on GBPUSD interbank levels.

Some of the fresh optimism for the pound came from Boris Johnson’s announcement of a ‘New Deal’ for the UK where he said Britain will ‘build, build, build’ its way out of trouble, with a revolution in planning laws to allow amongst others commercial and retail spaces to be redeveloped for housing. The extra £5bn of spending for infrastructure is also more positive news, although many reports in newspapers today suggest the measures are not as extensive as they could be. By comparison the original ‘New deal’ by US President Roosevelt accounted for 40% of GDP spending to rebuild America after the Great Depression of 1929, and would in today’s money amount to around £800bn as reported by the Times today.

UK Covid Cases Rise

Other positive news in the last 24 hours was Andy Haldane, the Bank of England’s chief economist who feels that the UK is rebounding more quickly than thought. He is quoted as saying ‘the recovery is so far V-shaped’, further helping sterling erase some of the more recent losses against its counterparts in yesterday’s trading.

These two pieces of news have seen the pound claw back some losses, but the pound remains at lower levels of the last few weeks and months against many currencies. Sterling is under pressure because of increased fears of a no-deal Brexit, with comments from earlier this week by Boris Johnson that the UK was seeking an ‘Australia style’ trade deal with the EU weakening the pound. Australia effectively has a very loose trading arrangement with the UK, based on WTO (World Trade Organisation) rules, which is effectively a no-deal Brexit, something we know markets do not take kindly too in their assessments of its impact on the UK for the future.

Whether or not the pound can continue to rise following yesterday’s pieces of news is a good question, it will perhaps take more than these two announcements to really alter the current perception. The pound has fallen 5.5% against the Euro since the end of April and 4.3% against the US dollar since June 10th, all relative to the highs and lows on interbank exchange rates in these periods.

Much of the weakness can be attributed to the Brexit outlook, but also the Coronavirus news, with Leicester being placed back under lockdown restrictions over fears of a second wave of new cases. The outlook remains uncertain and investors have been struggling to get behind the pound in such conditions.

What may move the currency markets for the rest of the week and ahead?

The start of any new month sees the latest PMI (Purchasing Managers Index) surveys where today Manufacturing, tomorrow Construction, and Friday’s Services data, all at 09.30 am will provide some of the most up to date assessments of the health of the UK economy.

Does Andy Haldane have it right in assessing the potential for a V-shaped recovery? These data sets which provide a score from 1 to 100 where anything above 50 represents growth in the sector may well be key. The bar has been set low with April and May’s data both showing record declines, these releases can often trigger some movement for the pound.

Tonight is the latest Federal Reserve Interest Rate Meeting Minutes, where we will learn of the thoughts in the latest decision making from the US central bank. The last meeting saw Fed chairman Jerome Powell state that he and his team ‘were not even thinking about thinking about raising interest rates’, in a clear signal of perhaps extended low interest rates. Any comments by the Fed which might provide fresh insight into their thoughts may influence US dollar rates but also other pairings too since as the world’s most traded currency, movements on the US dollar can often influence other currencies too.

Saturday is the 4th July and Independence Day, typically a bank holiday for the United States which is instead being observed this Friday. So, we are being treated to the usual Friday US Non-Farm Payroll and Unemployment data on Thursday tomorrow, at the usual time of 13.30 UK Time.

The NFPR release is one of the most important data releases of the month, particularly at present given a real focus by financial markets on the jobs market to determine the relative health of each economy, but also assess the potential damage that has been inflicted by the COVID-19 lockdowns. The US has been in the headlines for steadily rising numbers of new infections and cases of Coronavirus, it will be interesting to see the latest news from the US jobs market and to what extent any recovery is taking place so far.

Other important news to round off a busy week will be the latest Unemployment data for the Eurozone tomorrow and the beginning of trade talks once again between the UK and the EU. The Euro has been benefitting from weakness elsewhere, as it has made gains against both the pound and US dollar, as it gently emerges from lockdowns in a better state.

The first half of 2020 saw the wildfires in Australia and Coronavirus pandemic which has probably affected most people on the planet one way or another, and trigger an unprecedented policy response by government and central banks leading to some major volatility on many currency pairs.

With the second half of this year underway this scenario should continue to play out, with the risk of second waves and how the world combats the crisis sure to feature heavily again on exchange rates.

December 31st is the end of the transitional phase on Brexit and whilst nothing can be ever be guaranteed on exchange rates, the next 6 months looks set to continue to provide plenty of events to ensure volatility on a wide range of currency pairs.

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