After the past few weeks relief rally for the pound, we’ve seen the currency strengthen enough for the euro v pound exchange rate to break below the 0.90 threshold and remain there at least for the time being. Interestingly last week was very quiet in terms of UK based economic updates, so the improvements for the pound are mostly due to sentiment increasing for the UK and its currency.
Despite new cases of the COVID-19 virus spiking by a record amount over the weekend, many shops and industries within England (with the rest of the UK to follow) are opening up. Pubs opened last week and now beauty salons and hairdressers are opening back up so the next few weeks could be key for the UK and also the pound depending on how the reopening of business pans out. So far there have only been one or two small scale breakouts, and Leicester has been required to go back into lockdown due to increasing cases but so far there have been few issues which could help the pound recover back to the levels seen earlier this year should the economy recovery from the lockdown be swift.
May GDP Data Tomorrow
The concern for many will be that a number of spikes reoccur, and the lockdown measures are implemented once again as this could have a dramatic impact on an already frail economy. During April when the entire nation was in lockdown the economy shrunk by over 20%. Tomorrow the Gross Domestic Product (GDP) figures, which measures economic output of the nation will be released for May and there is an expectation of 5.5% growth as parts of the economy reopened back then. If this figure is correct, then it will demonstrate the gradual recovery that many hope for. I think that there could be a reaction from currency markets if the figure deviates from that 5.5% level, especially if its below that prediction.
Following on from May’s release the markets will then look towards the June figure. The 2nd quarter of economic growth out of the UK, as with much of the world, is going to show disappointing figures, but it may be the case that the economic damage from the lockdown measures in the UK isn’t going to be as bad as first predicted.
Brexit Deadline Less Than 6 Months Away
Another key topic that is likely to hit economic and tabloid headlines more often as the year continues will be Brexit. It is now crunch time for the UK as we now know that the UK will leave the EU when the current transitional phrase has passed. June was the last time that the government could request an extension and they opted not to despite the disruption to negotiations due to the travel bans. We know that negotiations between the UK and the EU are now ongoing, and should a deal be struck or arrangements made regarding key issues such as fishing rights and imports/exports I think we could see a reaction from the pound. Up until now whenever positive comments have been made regarding the negotiations we’ve seen the pound climb, and it also tends to fall when the lack of progress is touched upon especially from key figures such as Michel Barnier. Just recently the UK’s Prime Minister, Boris Johnson said that he hopes a deal can be made but if not his government is willing to pursue other options such as WTO (World Trade Order) Rules. Sterling dipped as a result so those of our readers planning on making a currency exchange involving the pound should continue to monitor this matter as 2020 progresses.
Apart from tomorrows GDP data there will also be several releases for the UK on Wednesday, when inflation data will be in focus amounts other data releases. On Thursday, the employment market will also be covered, and I expect these figures to also be watched closely. It could be a busier week for GBP exchange rates due to number of releases compared to last week for example when data was light.
In regards to Euro specific concerns, the group will continue to iron out the details of their most recent stimulus package which is designed to mitigate the negative impact of the lockdown in Europe which was stricter than the UK’s in many cases. There are also a couple of countries on the verge of joining the euro currency union, such as Croatia and Bulgaria which suggests demand to join isn’t low. This would be the first additions since 2015.