As the UK has this week been basking in the longest stretch of temperatures over 34C since the 1960’s, there was some increased heat on the pound yesterday too as the largest quarterly decline in economic growth on record of 20.4 % was recorded for April to June, Q2.
This week was always billed as a key one for economic data and for as much as the poor data is attributed to the lockdown and economic effects of Coronavirus, the harsh reality of the numbers is still headline news and sterling fell against most currencies yesterday.
The fall put the UK in the deepest recession of the G7 nations, second only to Spain in Europe in terms of worst economic growth in the first half of 2020. Coupled with the UK’s poor record on the handling of Coronavirus cases and deaths, it is understandable why the pound is not currently the top of investor’s shopping lists.
There is limited economic data today or tomorrow for the pound so this sentiment might form the basis of the pound’s behaviour against other currencies. Some of the important economic data remaining for the week are US Jobless Claims today and then Eurozone GDP data released tomorrow., which might help shape GBPEUR and GBPUSD levels.
GBPEUR interbank rates are currently 1.1051 and GBPUSD 1.3081, which is still representing an improved level compared to some of the lows seen in recent weeks, of 1.0903 and 1.2085 respectively, over the last month.
Changing the negative picture might prove tricky ahead, as there is still uncertainty for the UK and sterling in the shape of Brexit. With just 4 ½ months to the end of the transitional phase on Brexit on December 31st, markets will surely soon be forced to take greater consideration of the lack of any plan on the UK’s future trading relationship with its biggest trading partner, the EU.
Trade talks will begin again soon and whilst there has been talk of increased appetite for a deal in October, there remains a lack of clarity about what this will look like and the lack of news is currently a negative for the pound.
Another key focus will be on how quickly the economy bounces back from the recession in Q1 and Q2, with the latest data all pointing to encouraging signs of a rebound. Economic growth for May was 2.4% whilst June was a record 8.7%, as restrictions were gently lifted, and Britons were more able to go about their business spending in shops.
The direction of the Coronavirus pandemic will also be key in shaping government policy on any lockdowns, there are currently lockdowns of varying degrees in Greater Manchester, Luton, Leicester and Aberdeen, all of which will have an economic consequence.
We always knew the first half of 2020 was going to be tough, but with the data now confirmed and the UK having seemed to be worse off than its peers on many fronts, the pound might continue to find an uphill struggle ahead.
Overseas yesterday, the mood was more optimistic with US stocks posting some very strong gains on the back of the news that COVID-19 infections appear to have plateaued in America, and some economic data pointing towards a strong rebound in spending as US Inflation rose.
In Europe, factory activity improved with a 9.1% lift on activity from May until June, signaling a strong bounce in European factory output. Today’s Jobless figures for the US will be vital to sentiments after last week’s surge of 1.8 million in new jobs created helped the US dollar to rise.
Tomorrow’s Eurozone GDP will be a key indicator to help shape sentiment on Euro rates, with a prediction of -12.1% for the quarter. This is dire news but given the US experienced a 32.9% drop, and the UK 20.4%, it appears it might put the Eurozone as the better of a bad bunch.
Elsewhere Australian Unemployment released overnight was slightly better than expected with participation levels higher than expected and whilst the Unemployment rate went up to 7.5%, it was less than the 7.8% forecast.
Unfortunately, Australia and New Zealand have both been recording fresh cases of Coronavirus despite having been doing so well at containing their outbreaks. Australia recorded its worst day for deaths yesterday and New Zealand broke its 102-day record of no new cases with an outbreak in Auckland that has seen the city back under lockdown.
There was some positive news on a vaccine however yesterday, with Russia becoming the first country to give a vaccine full regulatory approval – ‘Sputnik – V’. This announcement was called into question by many commentators who expressed concern at the speed of the announcement and lack of testing.
There are currently many vaccines in advanced stages of trials which should they prove effective, could become a real game changer for the direction the pandemic takes, and may well influence the currency markets ahead.
Thank you for reading and please contact us to learn more about what events lie ahead and how it might influence your currency exchange.
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