Currency Note

Pound still vulnerable after strong week

By Erin Harding March 30th, 2020

pound

The pound rallied against the euro and dollar, hitting the best week against the latter since 2009. Nonetheless, it remains vulnerable to further coronavirus developments and is slightly weaker this morning.

There are a number of key data releases from the UK and Europe this week, including manufacturing. Given the current climate, the markets will be pricing in a drop, but it remains to be seen if the drop exceeds expectations like services last week.

Fears of the US becoming a new epicentre of the coronavirus crisis are rising and stocks fell across the board on Friday.

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GBP: Sterling weaker after sovereign debt downgrade

Sterling was strong against both the euro and the dollar at the end of last week, going against its recent trend of dropping as the markets fall. However, the pound is slightly weaker this morning after UK’s sovereign debt was downgraded one notch from AA to AA- by Fitch Ratings on Friday, owing to the significant increase in fiscal spending announced by the government.

On Friday, Boris Johnson announced that he has tested positive for coronavirus, causing the pound to weaken briefly. The Health Secretary, Matt Hancock, also has the virus.

It’s thought that, despite recent strength, the pound will remain vulnerable to coronavirus news. It also may be impacted by any news that the crisis is impacting the progress of Brexit negotiations.

This week, they’ll be data releases that could reveal more about how the virus is affecting the UK economy. Consumer confidence figures for March are due today and Manufacturing PMI on Wednesday.

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EUR: Business and consumer confidence due this morning

It was a choppy week for euro last week, beginning in a position of strength against the pound but ending weaker as the ECB’s economic bulletin warned of slow recovery for the eurozone economy. This morning, however, the euro is stronger against sterling.

Business and consumer confidence in the Eurozone are due to come in firmly in the negative this morning.

European services data dropped to a record low last week, too, adding to pressure on the single currency. While it had previously been up against the pound over worries that the UK was not taking serious enough measures, this has been alleviated by tougher restrictions coming into force.

This week we will see a number of inflation data releases, unemployment figures for Germany and manufacturing figures for the major European economies. Coronavirus figures continue to grow in France and Spain, although there is some hope that Italy will continue to show a drop in deaths throughout this week.

USD: Dollar stronger as Trump extends restriction period

After its worst week against the pound since 2009, the dollar is stronger this morning after a weekend of worrying coronavirus news. President Trump, who had initially talked of easing social restrictions, has now extended the period until the 30th of April.

The dollar maintained a weaker position at the end of last week, as central banks pulled together to try to mitigate the impact of coronavirus.

Stocks fell across the board on Friday; however, the dollar was little changed due to a raft of new stimulus measures from several central banks.

This week, there will be a raft of data for the US, which will begin to illustrate the effect that coronavirus is having on the economy. Perhaps the most significant release will be Non-Farm Payrolls, which are due on Friday.

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