GBP - British Pound
The pound found some respite from the sell off earlier this week after Coronavirus fears eased and less investors piled into the US Dollar for safe haven protection. Traders of the pound will also be watching for developments in Brussels and London ahead of the European Union and Britain beginning their negotiations to agree a trade deal for the end of a Brexit transition period in December 2020.
The start of this week saw European and U.S. stocks suffer their biggest loses since mid-2016 amid fears the coronavirus was morphing into a pandemic that could cripple global supply chains and wreak far greater economic damage than first thought. This sent investors clambering for the US Dollar, leaving the pound unloved and suffering a selloff as a bi-product.
Other factors supporting the pound include continued speculation that the new chancellor, Rishi Sunak, will ease fiscal policy, increasing public spending and ease tax burdens in his next budget in March.
With little in the way of new economic data out of the UK this week, investors remained focussed on dialogue between the EU and UK ahead of both sides launching into trade negotiations.
The Euro also rose for the second day in a row on the back of US dollar weakness but Europe is the new hot spot for the virus and unfortunately we expect the number of cases and the general sense of anxiety in the region to grow. This will put a dent into economic activity and raise red flags for the European Central Bank. Christine Lagarde, the new head of the ECB, has already raised concerns that an outbreak in the bloc could leave her hamstrung. The Eurozone already has a very low interest rate environment and a robust quantitative easing programme, and hence she doesn't have many cards left at her disposal should a virus outbreak take hold.
Germany confirmed another case of coronavirus, this time from a patient who visited Milan while Switzerland reported its first case also from Italy. Europe's open borders is becoming a serious problem for virus containment and according to the US' Center of Disease Control, a pandemic is inevitable in Europe. They also expect the virus to spread in the US and warned that it could take 12 to 18 months before a vaccine is developed, though human trials could begin as quickly as 6 weeks. Markets are selling off because investors realize that the more widespread the virus, the longer it will take for economic activity to return to normal.
The dollar nursed losses on Wednesday as rising expectations of a US rate cut and also a slight easing in Coronavirus concerns pushed investors away from the safe haven currency. However, concerns in the US about the Coronavirus are nowhere near gone as a top official at the US Center for Disease Control and Prevention (CDC) urged Americans to begin preparing for coronavirus to spread within the country, while another official said it was no longer a question of if, but when, the virus would become a pandemic. As outbreaks started to quickly spread to the Middle East and Europe, investors no longer saw the U.S. economy immune and started to bet the U.S. Federal Reserve will have to cut interest rates to support the U.S. economy.
1.2910 - 1.3030 ▲GBP/EUR:
1.1830 - 1.1970 ▲EUR/USD:
1.0830 - 1.0950 ▲GBP/AUD:
1.9630 - 1.9740 ▼GBP/CAD:
1.7180 - 1.7280 ▼