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Risk off after Powell warns of Covid-19 impact

Daily Currency Update

GBP - British PoundSterling like many riskier assets fell yesterday and remains lower this morning after dovish comments from US Federal Reserve Chairman, Jerome Powell led a flight to safety. Sterling, already being pressured by the worst quarterly GDP figure since the Global Financial Crisis wasnt helped by Powell or a stark warning from UK Chancellor of the Exchequer, Rishi Sunak about a "significant recession" hitting the UK with Q2 output expected to collapse, dwarfing the drop seen in Q1. Many analysts are expecting a double digit drop in growth with some even predicting it could be around the 25% mark meaning even with a recovery in Q3 and Q4 it could be the worst recession in hundreds of years. Yesterday official government figures saw another 494 Coronavirus related deaths reported bringing the total to 33,186 however the good news is the trend is on a definite path lower as the R number, the rate of reinfection remains below 1. Today sees Bank of England Governor, Andrew Bailey take part in a webinar with comments over the UK economy likely to be scrutinised by investors. GBP/USD is back under 1.22 with GBP/EUR under 1.13

Key Movers

Powell's much anticipated webinar appearance for the Peterson Institute for International Economics saw the Fed Chairman highlight the potential economic damage the Coronavirus could cause the US economy with him predicting it could bring the worst recession since World War Two. Many were hoping that he would leave the door open to further monetary policy measures such as negative interest rates however cold water was poured on that idea as Powell stated it had a full enough toolkit and extra help should come from the Trump administration itself. Global equities took a bath after the comments and remain on the back-foot this morning. Many are concerned that the rally in stock seen since March's crash was premature as an opening up of economies too soon could see a second wave of infections, a warning given by the much respected US Director of the National Institute of Allergy and Infectious Diseases, Anthony Fauci, earlier in the week.All major world indices are lower this morning with the FTSE again falling back from 6k, the German DAX heading back towards 10k and Japans Nikkei back under 20k. FX-wise the dollar is higher across the board with the exception of the traditional super safe haven yen with USD/JPY back under 107. Today's main event will be US Unemployment Claims due at lunchtime with 2.5m people expected to have filed for unemployment insurance last week which although a painfully high number would be a sixth consecutive fall since the 6.6m seen on April 2nd.

Expected Ranges

  • GBP/USD: 1.2180 - 1.2310 ▼
  • GBP/EUR: 1.1260 - 1.1370 ▼
  • GBP/AUD: 1.8880 - 1.9040 ▲
  • GBP/NZD: 2.03 - 2.0460 ▼
  • GBP/CAD: 1.7160 - 1.7310 ▼