Whilst the coronavirus continues to spread in the UK, the pound has actually had a good week rising to fresh three-week highs against the euro, US dollar and a two-week high against the Australian dollar.
Sentiment towards the pound has strengthened as global confidence surrounding the negative economic consequences of the coronavirus has improved, following the extensive stimulus measures being taken globally; plus the rising potential for a Brexit extension owing to the delays caused by coronavirus and national lockdowns.
The week has seen the beginning of a new month and with it the latest UK Purchasing Managers Index (PMI) data. This snapshot of economic performance in the previous month (March) has indicated some difficult conditions with Manufacturing coming in at 47.8, below the level of 50 (on a scale of 1 – 100) that would represent growth.
Important news for the pound is today’s UK Services PMI, with this sector contributing to 80% of the British economy, it will reflect strongly on the state the UK is currently in.
A recession and contraction in the economy is expected, it is the severity of it that is unknown.
Sterling has also benefited from weakness on other currencies, principally the US dollar and euro, which both lost ground this week and saw moves back into sterling. With the pound having clawed back some losses after a tough few weeks, it could present opportunities for those holding sterling.
The wider effects of the Coronavirus are beginning to be felt in the Eurozone, with Italy a key area of concern. The currency markets are concerned about the lack of a coherent overall plan, among the whole of the Eurozone, to get through the crisis.
With Italy having felt some of the worst of the health and economic crisis so far, there has been a direct appeal by Italian politicians to other Eurozone nations like Germany and Holland to develop a more integrated total plan.
The UK and US’s extensive and far-reaching stimulus packages contrast with the ad-hoc efforts by the Eurozone. The unwritten consequence of no coordinated action here is the potential once again for cracks in the solidarity that underpins the Eurozone, with fears that a lack of action will only make matters worse and cause old fears over Eurozone debts to resurface.
Eurozone data this week was also not very encouraging with PMI surveys across Spain, Italy and France all posting declines, with readings below 50, where on a scale of 1 – 100, anything below 50 represents a contraction.
The euro has fallen to a three week low against the pound and the US dollar following these fresh concerns, as markets worry about the longer-term impact on the individual economies, and whether the response will be enough.
During the financial crisis in 2008, it was said that the strong response by the United States allowed them to get their economic recovery back on track much faster than elsewhere. It is also well documented that the slow Eurozone response to that crisis and the raising of interest rates too soon in 2011, all contributed to much of the economic malaise in Europe in the following years.
Nevertheless, the euro has been discussed negatively and written off many times. It would be a mistake to underestimate the political will to keep the show on the road and get through tough times.
If you have a euro transfer to consider it might be a good time to speak to your account manager about the current market conditions and events ahead that could influence euro exchange rates.
Whilst markets have regained some confidence there remains a huge amount of uncertainty over what lies ahead next for the global economy. The strong measures taken by the US Government to tackle the crisis from an economic point of view, including paying millions of US workers a $1200 cheque, and billions of dollars of loan to business, has all helped to trigger a turning point in the currency market and stock markets.
Whether these measures are sufficient will only become apparent in the future, but the cost of doing nothing is seen as too great, and the response has received a welcome from financial markets.
This has seen the US dollar losing value this week, as it had previously strengthened on the fears over the coronavirus and the potential negative effects on the global and US economy.
As a safe haven currency, the US dollar will rise in times of uncertainty, as investors prefer its relative stability and security against perceived riskier investments elsewhere. In times of renewed confidence however, the US dollar can weaken, as investors regain their confidence to go back to those riskier and higher yielding returns, selling off their US dollar positions.
Today is a key date for the US dollar with the latest NFPR (Non – Farm Payroll) and Unemployment data released this afternoon, which will provide some insight into how the US economy is performing. These closely watched signals will carry extra weight given recent events, as the market seeks greater clarity of hard evidence of the effects of COVID-19 on the world’s largest economy.
The US is unfortunately experiencing some of the worst of the health effects of the pandemic, with more reported cases than any other country. Getting a handle on this will be important, particularly in an election year where politicians words and actions can be more closely scrutinized.
Predicting movements on the US dollar are made more difficult by its safe haven status, and the ever-changing global market sentiment in the face of the unique health and economic conditions we face. For more information on what drives the US dollar and what else might influence your US dollar transfers, please contact your account manager.
The Australian dollar has experienced some increased volatility at the hands of the COVID-19 pandemic, as investors’ fears over the global outlook weigh on their attitudes towards this commodity currency, so heavily reliant on a strong global economy.
China, one of the countries worst affected by the virus, is a large factor in determining exchange rates for the Australian dollar. As global attitudes to the pandemic shift, so too can attitudes towards the Aussie as the market becomes fearful or confident.
The Australian dollar has lost value in recent weeks as the market is concerned about the continued negative effects, not just for China, but also the global economy ahead and demand for Australian raw materials.
However, there were some positive signs this week, as it was seen that Chinese PMI data moved back above 50, on a measure of 1 – 100 where anything above 50 represents expansion.
Next week could be crucial for the Australian dollar, with the latest news from the Reserve Bank of Australia, who might provide an update on possible economic policy ahead. In their latest meeting minutes, we learned there is little appetite for negative rates and the current 0.25%, the lowest on record, was deemed sufficient for now.
If China can come through this crisis quickly it will support a more positive outlook for the Australian dollar, and perhaps provide further confidence globally too.
The pound is close to some of the highest levels on the GBPAUD interbank exchange rate since the Referendum. If you have any currency transfers involving the pound and Australian dollar, please speak to our team to learn more about what might lie ahead.
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