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Chinese data shows signs of recovery

GBP - British Pound

The UK witnessed an increase of 180 deaths from the previous day and total confirmed cases rose by another 2,619 taking the total to 22,141 on Monday. Chief scientific adviser Sir Patrick Vallance said it would be two to three weeks before these social distancing measures begin to have an effect on the numbers falling ill. On the positive side, the UK is extending efforts and is close to opening the world’s largest hospital built in 10-days while also ordering more ventilators, nearly 15,000, than the total number it says it needs to cope with the coronavirus pandemic. There was also some glimmer of hope across Europe as infection rates fell in Italy and Spain showing social distancing and lock downs appear to be having an impact.

This morning we had the release of UK GDP, this revealed that the economy showed no growth, arriving at 0.0% QoQ in the fourth quarter of 2019 vs. 0.0% seen in the first readout while meeting the consensus forecasts of 0.0%. It’s also worth noting this release would have covered pre-virus conditions so has largely been brushed aside but does highlight that we have narrowly avoided a technical recession.

The value of the Pound has dropped overnight and into this morning and there a number of reasons for this happening. The pandemic has renewed the EU-UK tussle over the December 31, 2020 deadline after the EU’s political group urged Britain to do the “responsible thing” and extend the Brexit transition period. However, the UK PM Boris Johnson’s spokesperson turned down any such scope while stating that the transition period ends on December 31, 2020. Secondly, Fitch downgraded its credit rating on the U.K. by one notch to AA- from AA on Friday. The credit agency cited the significant increase in fiscal spending as a result of the coronavirus, as well as the uncertainty regarding the post-Brexit trade relationship with the EU. Cable has fallen below the 1.23 handle and GBP/EUR is back below 1.12 off the back of these events.

Today’s docket is thin for the UK so direction will come from Covid-19 but could also be a choppy session as end of month flows kick in.

Key Movers

The USD’s safe haven demand kicked in on Monday and pushed the Dollar higher, reversing six days of consecutive losses. With the US injecting masses of funding into the economy, it has calmed the storm somewhat, but with the states soon to become the new epicentre of the virus, the greenback will be on unsteady ground. Data releases for the US is one to watch for the next few days, last week’s jobless claims gave us a taste of the damage COVID-19 is doing to the economy and this week we have a raft of employment releases.

In other news China surprisingly posted an increase in its Manufacturing PMI overnight. A figure above 50.0 shows expansion and we saw 52.0 released. This was a huge jump from last week's all time low of 35.7. In other Chinese data new orders expanded but exports and imports were still contracting, this is to be expected though as China is ahead from the rest of the world with recovery from Covid-19, therefore slowing the global trade with China.

The price of Oil also took a damaging blow yesterday after its price dropped below $20 a barrel and this has caused issues for the commodity based currencies, in particular the Canadian Dollar.

Expected Ranges

GBP/USD: 1.2250 - 1.2350 ▼

GBP/EUR: 1.1150 - 1.1250 ▼

GBP/AUD: 1.9920 - 2.0150 ▼

GBP/NZD: 2.0490 - 2.0600 ▼