The Prime minister’s swift exit from hospital prompted a sharp spike for sterling exchange rates as we started the week, shifting by more than 0.5% up to the mid 1.14s against the Euro on Monday.
With little economic data due for release from the UK as we start the week, it will arguably be the government’s response to the rising pressures the lockdown is imposing on the economy that could prove to be the main driver for Sterling exchange rates.
Last week, the National Institute of Economic and Social Research board produced their latest report estimating a loss of 25% of the UK economy should current lockdown measures be maintained until the summer. Furthermore, shadow cabinet minister Rachel Reeves voiced Labour’s call for the government to detail their exit strategy from the lockdown to alleviate these pressures as and when it is possible.
As it stands, there is every expectation the government will extend the lockdown without change on Thursday however there does seem to be a growing divide within the cabinet, with ministers prioritising the importance of protecting the nation’s well-being against the virus over supporting the economy and vice versa. It will be interesting to see how the markets react should a change in stance be signalled this week.
The euro’s position has weakened gradually on the international stage since the start of the month, with interbank rates against the pound and the US dollar falling by almost 2% against both major pairings respectively. Evidently the struggles in Italy and Spain in particular have done very little to help support the single currency, with euro holders turning to tomorrow’s key inflation data across the bloc’s major players in the hopes of a change in trend.
Indeed, the national institutes of statistics for France, Spain and Italy will tomorrow release their Consumer Price index reading for the month of March, with investors watching closely to assess the damage the lockdown has inflicted on their respective economies. Furthermore, these releases come ahead of the International Monetary Fund’s meeting on Saturday to discuss an efficient reallocation of funding to help support the areas of the European economy most impacted. As a result, tomorrow’s release could hold more weight with the markets and is worth keeping an eye on if you have a currency requirement involving the euro.
It could prove to be an interesting start to the week for US dollar exchange rates with this afternoon’s key international trade data holding the potential to be the first market mover. Throughout last year, as trade tensions with the China escalated, the US government leaned on the sizeable growth in exports as a demonstration of strength with a competitive reach that appeased investors and arguable helped the dollar maintain it’s value on the international stage. Now however, with global markets having been pulled to a standstill as a result of the virus, trade data across the majority the US’s main trading partners has already started to show signs of slipping and so today’s releases are expected, understandably to show a drop too.
Importantly, it is worth remembering that US trade represents around 20% of world trade and so a fall in the value of exports for example, might be taken as a sign of weakness across global markets which historically has benefitted the dollar as a result of it’s safe haven status. Something worth considering if you are in the market for US dollars this week.
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