Sterling could remain fragile for sometime, the pound is not considered to be a safe haven currency and is often not popular amongst investors in times of global economic uncertainty. There is a huge imbalance in the amount the UK export in comparison to the amount the UK import. Even if it were not for the coronavirus situation, we still have Brexit to contend with.
A major concern is trade negotiations surrounding Brexit. Boris Johnson has stated on numerous occasions there will be no extension in trade talks past 2020, admittedly this was pre-corona and of course the virus could not have been predicted, but an extension has yet to be announced. Although this may seem likely in the current situation a no deal scenario is still on the table and sterling could remain vulnerable until there is some kind of clarity surrounding trade.
We have seen the pound make gains against the euro of late with GBP/EUR breaching 1.15 during this week’s trading. It could be the case that 1.15 holds up as a resistance point, but we will need a few more days monitoring the market in order to see if this is going to be the case during these unpredictable times. During Brexit negotiations 1.15 was a solid resistance point for 18 months GBP/EUR retracting quickly whenever it went above 1.15.
Many countries have taken bold monetary policy decisions in order to stave of a huge economic downturn caused by the Corona virus. The European Union have not been so bold, and the measures taken so far are being deemed inadequate. We have recently seen €500bn pledged to the economy but this is meagre in comparison to the US’s response of emergency aid with USD 2.2tn promised.
Some members of the bloc are calling for assistance through the use of 'Coronabonds' whereby EU nations take on a collective debt for further aid. Germany are the engine room of the block and are reluctant to take on a huge amount of collective debt, the Netherlands also have a similar stance.
At present there are members of the EU who are at loggerheads in regards to getting an emergency package put together and negotiations could prove difficult to say the least which will again strain relationships between members of the bloc. If a deal is agreed however we can expect euro strength.
Yesterday saw the release of US retail sales figures for the month of March, this was waited for with bated breath by investors as this may give some indication of the impact the coronavirus has had on that specific sector. Figures were expected to land at – 0.8%, they landed at – 0.87% which has dented investor confidence.
The Bank of Canada’s interest rate decision took place and those holding Canadian dollars will be pleased to know that rates were kept on hold at 0.25%. Today will witness US building permits for the month of March which are a key indicator in projecting future housing starts. This could influence US dollar value. This will be followed by US initial jobless claims giving an insight into the labour market which again cold influence US dollar value.
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