After seeing the pound's value repeatedly suffer over the last week, Wednesday saw the currency bounce back and regain some value across the board.
The Corona virus continues to dominate all aspects of global news, with the number of reported cases in the UK growing to 87 (at the time of writing), more than double the reported cases 24 hours earlier. Even though the number of cases is relatively low they are already signs that UK businesses are going to suffer as the virus spreads. UK airline Flybe is at the brink of collapsing as demand for bookings flights abroad has taken a big hit and is unlikely improve anytime soon making it difficult for the potential leaders or the UK government to justify rescuing the failing airline company. Other UK airlines have cancelled a significant number of flights as travellers choose to stay at home.
Yesterday afternoon, news surfaced that the markets were starting to price in a rate cut by the Bank Of England (BoE), which would follow in the footsteps of the Federal Reserve (Fed) surprise rate cut on Tuesday.
With the BoE not due to meet until the 26th of March, if the status of the Coronavirus worsens in the UK then the central bank may be tempted to take action early by cutting rates at any moment. Any surprise rate cuts could still prove to be a significant mover for the pound's value in either direction so be sure to stay up to date with your trader and discuss the possibility of placing a limit order.
Incoming BoE governor Andrew Bailey spoke yesterday evening, however he gave no suggestion that the bank are ready to cut rates. “What we need is frankly more evidence than we have at the moment as to exactly how this is feeding through," said Bailey, referencing the impact of the global Coronavirus on the UK economy, these comments seem to further support the pounds gains on Wednesday.
Today speeches from The Bank of England Andrew Haldane at 13:00 and exiting Governor Mark Carney will be watched closely for any further evidence others within the bank may or may not be considering any imminent policy changes.
UK Data wise Purchasing Managaer's Index (PMI) Services figures was released on Wednesday showing a number of 53.0 falling short of markets expectations and last month's reading of 53.3.
The euro's stellar performance over the last week, which saw big gains against the pounds and US dollar, was halted yesterday as the pound returned to above 1.15 vs the euro and the single currency back down to 1.11 against USD. The fundamental trigger to the euro's retreat appears to be the rally in global stock markets, to which the euro is negatively correlated. In short, when markets are selling off, the euro usually finds support, when markets are rising the euro tends be sold off, claims Dominic Bunning, Senior FX Strategist at HSBC Plc.
Italy continues to be the worst hit country in the EU by the Coronavirus, with the government announcing the closure of schools and universities for the next 10 days and all professional sports events to be played behind closed doors for a month as the country battles to control the spread, with over 3,000 cases and 107 deaths confirmed so far.
Europe had a mixed day for data release with Retail Sale figures for Germany and Europe both showing stronger numbers than expected, German Purchasing Manager's Index (PMI) Services and Composite numbers fell short of market expectations at 52.5 vs 53.3 and 50.7 vs 51.1. Eurozone PMI Composite did meet expectations of 51.6. Though normally significant data releases, FX markets didn’t seem influenced by these numbers today.
The run for the US presidential race developed further yesterday. Despite committing a reported $500m on his campaign to run against Donald Trump, billionaire businessman Michael Bloomberg admitted defeat and pulled out of the race, lending his support to Joe Biden who at 7/4 is the bookie's closest rival to Donald Trump attempts to run for a second term as president of the worlds biggest economy. With Trump odds on favourite at 4/6 to hold his seat when the final votes are counted in November, the markets seem untroubled by any potential changes at this stage.
The Federal Reserve's attempts to boost the markets by announcing a surprise interest rate cut on Tuesday, has yet to show any significant impact on the markets with it expected that other central banks are likely to follow suit in the coming weeks and months.
The Bank Of Canada became the third central bank to cut interest rates this week, after cuts in the US and Australia. With a cut of 50 basis points it was the first cut by The Bank of Canada since 2016. According to the policy statement; ‘While Canada’s economy has been operating close to potential with inflation on target, the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding’. Before the announcement the pound had fallen to 1.7048 vs the CAD but managed to recover and hit a daily high of 1.7255 after the rate cut had been confirmed.
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