After a strong day yesterday sterling is slightly weaker this morning, possibly due to negative global market movements and warnings from the UK’s tax and spending watchdog that coronavirus could lead to the economy shrinking by as much as 35%.
European leaders have come to an agreement over a financial rescue package to help the countries hardest hit by coronavirus, although the idea of coronabonds has not made the final deal after opposition from Germany, the Netherlands, Austria and Finland.
The dollar looks ahead to retail figures later today, expected to show a sharp drop.
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GBP: Economic worries for the UK increase
The pound reached one-week highs against both the euro and the dollar yesterday, as optimism surrounding the effectiveness of lockdown measures increased. However, sterling is weaker this morning. As we have seen recently, it is moving with market sentiment, which has soured slightly. The pound also may have weakened due to the potential damage that the coronavirus crisis could inflict on the UK economy.
Yesterday afternoon, the UK’s independent tax and spending watchdog warned that the coronavirus pandemic could see the economy shrink by a record 35% by June. The International Monetary Fund also said that the UK could see the worst economic slump in a century.
Chancellor Rishi Sunak addressed the press in the daily briefing yesterday, stating that the latest death figures for the UK are a “powerful reminder” of the need for people to follow social distancing advice.
EUR: European leaders agree to financial rescue package
After protracted negotiations, EU leaders have come to an agreement for a €500 billion emergency loan finance package to help fight the economic disruption of coronavirus. The idea of common ‘coronabonds’ has, for the moment, been shelved following opposition from some northern European member states. This programme instead makes use of the EU’s bailout fund and €200 billion in guarantees from the European Investment Bank.
Meanwhile, some countries have begun a tentative easing of lockdown, with some workers returning in Spain and some shops, DIY and garden centres reopening in Austria. In Denmark, schools for the younger cohorts are also reopening.
This week is relatively quiet for data. Spanish inflation has shown a contraction this morning, with French and Italian inflation also dropping slightly, although yearly figures are still in the positive. The next European releases we see will be industrial production tomorrow, expected to decline further given the circumstances.
USD: Dollar awaits retail sales data
The dollar was weaker yesterday as global risk sentiment improved, meaning that investors began to move away from safe-haven currencies. However, it is stronger this morning due to prevailing global economic worries.
US retail sales figures for March are due to come in today and, due to coronavirus lockdown measures, are expected to show a dramatic drop. Industrial production figures will also be released.
During a press conference at the beginning of this week, President Trump claimed that he has “total authority” to lift lockdown measures in the US. Ten states on the East and West coasts are planning to lift their strict stay-at-home restrictions.