Unprecedented support from the UK government seems to have helped shield the pound from further losses after heavy drops throughout last week prompted investors to question once more the surety within British markets at present.

Indeed, the £330bn loan guarantee and wage support for UK PLC helped sterling recover to the high 1.07s against the euro just before the weekend and has managed to hold it’s ground since even with extremely volatile movements across global markets.

Interestingly, despite the FTSE 100 finishing 3.3% down on Friday and the Bank of England seemingly forced into promising a £200bn stimulus package, it seems investors might be waiting for the next round of data before committing further.

Of course, the speed at which COVID-19 is spreading at and how quickly it impacts UK businesses might play determining factors as to the next trends for the value of the pound. The latest Deloitte report estimated up to a 10% decline in UK GDP, which is almost 4 times greater than any other slowdown in the last half a century.

Economic Factors That Could Impact GBP Rates

This morning’s market PMI release at 9:30 might provide some early insight into confidence within businesses across the UK. The expectation is a considerable drop down to 45 from the previous 53.5. Clearly there is plenty to justify such a drop, the risk here is whether or not it falls even further and how the markets will react.

This will act as a precursor to tomorrow’s key inflation data which might draw a particular amount of attention given the amount of monetary stimulus being put forward by the government and the Bank of England.

Eurozone Business Confidence Collapses

World press are now placing the EU as the epicentre of the coronavirus pandemic with nearly 24k cases in Germany, 28k in Spain and a mammoth 58k in Italy. As a result, we are already starting to see leading eurozone business’ struggle to hold their ground. Major car factories have shut across Europe with a substantial lack of demand, a drop off in workforce (Lockdown) and subsequent supply chain flaws.

Perhaps the most effected, Germany’s recent ZEW business confidence survey showed a drop to it’s lowest levels since the infamous Eurozone crisis.

Unfortunately for euro holders, the European Central Bank’s €750bn stimulus package has done relatively little to bolster investor confidence with the single currency unable to make any substantial inroads against it’s major currency counterparts since the start of the week.

This morning’s key Markit PMI data from across the eurozone may well set the tone for euro exchange rates in the first half of this week. Should they fall in line with last week’s pessimistic ZEW readings, we might see another bout of euro weakness for foreign currency buyers to capitalise on.

Will GBPUSD Break Above 1.45?

Sterling's Fall to a 35-Year Low Against the US Dollar

It has also been a particularly testing time for the US economy, with uncertainty within global markets already leaving lasting marks on the employment, trade levels, politics and monetary policy. Despite all of this, sterling. slipped to a 35 year low against the greenback during last week’s trading, which goes some way to demonstrate the lack of faith behind the pound at present.

Indeed, US unemployment claims jumped to it’s highest levels since 2017 whilst Chinese retail output fell by over 20% YoY in February which is expected to have drastic repercussions on American GDP further down the line.

Goldman Sachs have already pushed their estimate of a hit of almost 7.5% to US GDP in the second quarter, the sharpest fall since the mid 1950s and dwarfing the 2.3% contraction posted following the 2008 financial crisis.

As a result, it will be interesting to see how this afternoon’s key housing data for the US will look, particularly as there hasn’t been much media coverage over confidence within the real estate sector.

The latest business confidence surveys from the Services and Manufacturing sectors are also due early this afternoon. Clients looking to time their US dollar transfers in the short term may wish to contact their account manager and discuss their options this morning.

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