After a selloff last week, the GBPEUR exchange rate has recovered by over 3.5 cents when we take the lowest and highest levels into account, with the pair climbing at high as 1.1178 at the day's highest point yesterday.
These gains can largely be attributed to positive rumours in the lead up to UK chancellor Rishi Sunak’s statement which he made on Wednesday, but the pound has also continued to climb in the wake of the announcements.
The key talking points from Chancellor Sunak’s latest stimulus package are temporary reductions in stamp duty costs when purchasing property, with the thresholds being increased in order to provide the UK property market with some stability. There is also a new job retention scheme encouraging employers to retain staff and there was a lot of focus on the hospitality and tourism sectors. A total of £30bn is being pumped into the economy to try and mitigate the negative impact the lockdown has taken on the economy.
The immediate reaction to the news was tentative but Sterling has continued to climb since, although not all currency analysts believe the only way is up for the pound from here. Chief FX strategist at ING, Petr Krpata, stated this week that although the Chancellor's proposals were higher than expected, they aren’t enough to push Sterling much higher and the main driver of Sterling value will continue to be the UK and EU trade negotiations as the year progresses.
Economic data from of the UK has been very light this week, so Brexit updates will likely continue to drive the pound's value for the time being. One of the most recent updates regarding the negotiations relates to the ‘fishing rights’ as there were rumours that negotiators are close to a ‘landing zone’ for the matter, and this resulted in a boost to the pound. Those of our readers following the pound's value should continue to monitor Brexit updates.
Yesterday, both Croatia and Bulgaria moved a step closer to joining the euro currency group, and should they officially join, it will be the first time the euro currency union will have increased its membership since 2015.
There could be an announcement regarding this later today from the European Central Bank (ECB) according to Bloomberg. This suggests that there is still demand from European nations to join the currency union, and it tends to signal further investment and ease of business especially for Eastern European nations as many are keen to draw a line on their communist pasts.
The euro appears to be well positioned moving forward as a stimulus package has been agreed upon by EU leaders to counteract the lockdown measures, and many EU constituents have dealt with the pandemic well with measures tending to be much stricter than some of the worse hit nations such as the UK and the US among others. Despite the pound's strong performance over the past week, the euro to pound exchange rate remains within 5-cents of the highest levels for EURGBP in around 11-years.
Job creation has been high on President Trump’s agenda throughout his term so far, and after the dramatic jobs loss of 22m in March and April due to the COVID-19 pandemic and the lockdown measures implemented, Trump will be keen to highlight the turnaround in new jobs created since then.
Non-Farm payroll figures, which measure the amount of new jobs in the US outside of the agricultural sector have beaten expectations in May and June reversing roughly around a third of the job losses from the March and April period. I think this area of the US economy will continue to be followed closely by financial markets.
Jobless claims in the US for June were followed closely yesterday for the above reasons, and they came out lower than expected which helped the US dollar claw back some of its recent losses.
The ongoing trade talks between the US and China will continue to be followed closely, and I also expect the Presidential battle between Trump and his Democratic opponent Joe Biden will continue to be watched closely also as it could impact US dollar exchange rates. Financial markets will be loath to take polls overly seriously after the 2016 election shock.
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