After weakening against the euro at the beginning of the week, sterling hit a 6-month low against the dollar yesterday. However, it did recover slightly after the Prime Minister and the Chancellor revealed more measures to boost the UK economy.
The euro also suffered yesterday, as the latest economic data releases raised a red flag for the German economy. Meanwhile, despite similar fears in the US, the dollar continues to benefit from its safe haven status.
On a more positive note, the last makeshift hospital in Wuhan, China has been closed as the infection rate has fallen. Yesterday, China reported 19 new coronavirus cases, down from 40 a day earlier.
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GBP: Sterling weakens against dollar
Sterling fell to fresh 6-month lows against the dollar yesterday, erasing gains made in the second half of 2019. However, it recovered slightly in the wake of the Downing Street press conference.
The Chancellor of the Exchequer, Rishi Sunak, revealed more measures yesterday to boost the economy. £330 billion worth of guaranteed loans are to be made available to UK businesses in order to cope with the coronavirus crunch, and there will be a three month ‘mortgage holiday’ available to those who need it. Sunak said that he will do “whatever it takes” to support the UK through the crisis.
The new Bank of England Governor, Andrew Bailey, pledged ‘prompt action’ to the current crisis, suggesting that the Bank may introduce fresh quantitative easing, or another emergency rate cut in the near future.
EUR: German economy on red alert
Despite starting the week in a fairly strong position, the euro weakened yesterday after the German ZEW survey was released. This is the first survey that accounts for the impact of the coronavirus on the German economy.
The ZEW expectations for March came in at -49.5, down from 8.7 in February. This severely missed expectations of a -26.4 reading and is the largest ever fall recorded by the ZEW Institute since they began their survey in 1991.
This means that the German economy is now on red alert and experts are expecting a significant decline in real GDP growth.
Today, we’ll see Balance of Trade and inflation rate figures for the euro area.
USD: Dollar supported by market distress
The dollar strengthened against the pound yesterday, benefitting from sterling weakness and its safe haven appeal. The latest greenback strength has been reinforced by funding market distress.
US retail sales came in yesterday, dropping 0.5% from a month earlier in February 2020, following an upwardly revised 0.6% increase in January and missing market expectations of a 0.2% rise.
Today, housing starts and building permit data will be released, however, the dollar is likely to continue to react to the market response to the coronavirus.
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