Daily Currency Update

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UK's eye watering unemployment number

GBP - British Pound

In the UK, yesterday saw more than 850,000 people lose their jobs in April alone, which was significantly greater than 675,000 expected. UK unemployment-related benefits had risen to their highest in 20 years. There was some light at the end of the tunnel for the pound as the unemployment rate improved and weekly earnings ex bonus fell less than expected. Investors latched onto this small piece of good news, and sterling rallied overnight to almost 1.23 against the US Dollar.

UK inflation data was released this morning at 0.8% versus 0.9% expected. Prices were expected to fall because according to the PMIs, not only were prices subdued in manufacturing but the “rate of decline in average charges among service providers was the fastest in the survey's history.” However, given the small effect of this data compared to the unemployment data, we are not expecting to see GBP react massively to the news.

The market is still watching developments on the Brexit negotiations closely. There is expected to be a UK-EU summit on the 30th of June, widely understood to be the final chance Boris has of securing an extension to the end of year deadline. Boris still remains confident a deal can be struck and that we will not be extending the deadline under any circumstances, however as reported earlier in the week, the EU's Barnier is certainly not as optimistic. This could weigh down on the pound in the coming weeks as we head closer to that end of June deadline.

Key Movers

Federal Reserve Chairman Jerome Powell testified and his comments were far from upbeat. He warned that the economic recovery could be hampered without more state aid and that lasting unemployment can weigh on the economy for years. US Treasury Secretary Mnuchin, also warned that a prolonged business shutdown would pose long-term threats to the economy, from widespread bankruptcies for small businesses to long-term unemployment for millions of Americans.

According to the latest economic reports, US housing market activity contracted further in the month of April with housing starts falling 30% and building permits falling 20%. Figures on new and existing home sales will be even worse.

Medical news website STAT cast doubt over encouraging early results from Moderna Inc vaccine trial stating they lacked detail. The market is a little directionless at the moment and is waiting for queues around testing and vaccine breakthroughs for clear direction on next steps.

For the past six weeks, EUR/USD has been consolidating near 1.08 but in the last 48 hours, the pair rose within very close to 1.10. German and Eurozone investor confidence improved significantly in the month of May with the German ZEW survey jumping to 51 from 28.2 in April. The data shows that existing sentiment is weak but expectations rose to their highest level since March 2015. It is clear that everyone is looking forward to the recovery and expect it to start soon, with US consumer sentiment last Friday also jumping significantly higher. Investors were also pleased with Merkel and Macron’s proposal for a EUR 500 billion recovery fund on Monday. Countries across the Eurozone are beginning to ease travel restrictions which should encourage economic activity. The Euro has been buoyed by the information and could continue on a rally.

Expected Ranges

GBP/EUR: 1.1120 - 1.1230 ▼

GBP/USD: 1.2180 - 1.2320 ▲

EUR/USD: 1.0910 - 1.0990 ▲

GBP/AUD: 1.8580 - 1.8810 ▼

GBP/CAD: 1.6940 - 1.7210 ▼