Currency Note

Global economy shows signs of recovery

By Erin Harding July 7th, 2020

Positive data from the UK, EU and US show that economies made some recovery in May and June. However, with rising infection rates in the US and localised lockdowns in the EU and UK, there are fears that this progress could be hindered.

Ahead of an announcement from Chancellor Rishi Sunak tomorrow, the UK government has pledged to support trainee jobs and the arts with new funding packages. As Brexit talks continue in London this week, the pound could react to any news about how these have progressed.

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GBP: Construction PMI shows significant improvement

Sterling was weak against the euro and stronger against the dollar throughout the course of yesterday. However, it is weaker against the dollar this morning. Like last week, the pound has Brexit talks to contend with, and any news from this could affect sterling.

As well as this, Rishi Sunak will reveal more details about government spending tomorrow. Yesterday he announced that the government will introduce a £111m scheme to encourage businesses to hire trainees and has also pledged to support the arts with a £2 billion funding package. However, the Culture Secretary said that this money, aimed at supporting theatres, the music industry and so on, would not save every job.

Data released yesterday revealed that UK Construction PMI jumped to 55.3 in June 2020 from 28.9 in the previous month, showing that the sector has reopened its supply chain following lockdown restrictions.

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EUR: Retail sales strengthen euro

The euro has had a strong start to the week due to reports that the Eurozone economy is recovery. After positive factory data yesterday morning, Eurozone retail sales rose 17.8% month-on-month in May, above expectation of 15%.

This morning, German industrial production data showed a 7.8% increase month-on-month in May of 2020, following a record 17.5% drop in April as the country started to ease lockdown restrictions. However, figures came well below market expectations of a 10% surge. The euro has weakened slightly as a result.

USD: The economy starts to recover, but for how long?

The dollar remained weak yesterday as good news about the US economic hampered safe-haven demand. However, it is looking stronger this morning.

The ISM Non-Manufacturing PMI for the US jumped to 57.1 in June of 2020 from 45.4 in the previous month, beating market forecasts of 50.1. Data also showed that the service sector rebounded in June, showing that the economy is getting back on its feet as restrictions are eased.

However, it is worth keeping in mind that rising infection rates could derail this economic progress as restrictions are, once again, put into place.

Three Federal Reserve Officials are due to speak today, which could shed some light on expectations for the US economy.

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