The pound finished strongly last week as investors grew more confident that the US Administration and Federal Reserve stimulus would be enough to absorb some of the impact of the coronavirus pandemic. Since the US government announced the $2trillion stimulus package and the Federal Reserve injected more dollars into the market, investor flow has retreated from safe havens amid a reversal in G10 performances. These liquidity measures have led to a broad depreciation in the dollar, with the pound rising to two week highs.

Despite this, a good deal of nervousness still remains in the market as the cost of financial derivatives aimed at protecting against price swings in the currency remain relatively high. Despite these market calming measures, money managers still remain nervous about the impact of the coronavirus.  

13.00 – EUR: German Harmonized Index of Consumer Prices (YoY) (Mar); expected to fall to 1.4% from previous 1.7%.

Sterling recovered against both EUR and USD on Thursday following an improvement in global investor sentiment.

A number of generous support packages from global central banks have put global stock markets on the road to recovery with a feeling amongst some investors that the worst of the Corona virus is behind us.

In the current climate sterling has been deemed high risk, and has moved lower over recent weeks as investors have sold sterling in an attempt to de-risk their portfolios. With investor sentiment picking up for risk-on assets sterling has benefited.

In addition to global investor sentiment, sterling was helped higher by the Bank of England’s decision to leave interest rates on hold at 0.1% and the quantitative easing programme to inject an additional £200bn into the economy unchanged.

The Bank of England stated it is currently too early to tell how severe the damage the corona virus will cause to the economy, but acknowledged mounting risks of widespread job losses and companies going out of business. Despite this, the bank indicated that they remain ready to act if needed.

The dollar fell sharply on Thursday as labour data released showed a record surge in unemployment claims.

The reading far exceeded market expectations of 1.6 million claims to read 3.2 million, up close to 3 million on last months reading.

The data is significant as it is a reminder to investors that despite central banks introducing significant measures to combat the corona virus crisis, the full extent of the virus is yet to be quantified.

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The Bank of England and Britain’s finance ministry will resume their coordinated drive on Thursday to prevent the coronavirus-related shutdown of swathes of the economy from triggering a long and deep recession.

The Bank of England, which has made two emergency cuts to interest rates this month, boosted its bond-buying programme by a further 9% of British economic output. It has also taken a string of other measures to help lending and is likely to hold off on further action when it makes a statement at 12:00 GMT.

Governor Andrew Bailey, who has been in the job for less than two weeks, along with other top Bank of England officials, has suggested they will not cut the Bank Rate from its new all-time low of 0.1% into negative territory.

Instead, they are likely to underscore their determination to take more radical measures – probably a further increase in their quantitative easing programme – if needed to steer Britain’s economy out of its expected slump.

The dollar fell during early Thursday trade. This is due to markets expecting a surge in US claims for unemployment benefits as companies lay off workers due to the rapid spread of the coronavirus.

The US weekly jobless claims figure is schedule to be released this afternoon. Investors expect a sharp rise of close to one million, which would be well above the previous peak seen during the global financial crisis. Some analysts say jobless claims could even exceed one million as companies are expected to rapidly shed workers.

Republicans and Democrats in the US Senate hoped to vote on Wednesday on a $2 trillion emergency package, but found themselves fending off critics from the right and left who threatened to hold up the bill. US President Donald Trump is expected to swiftly sign the bill into law, but a Senate vote has yet to be scheduled.

12.00 – GBP: MPC Official Bank Rates Vote
12.00 – GBP: Monetary Policy Summary
12.00 – GBP: Official Bank Rate
12.30 – USD: Unemployment Claims; Forecast at 1648k against previous of 281k

The pound showed signs of recovery on Tuesday and rallied against the US Dollar after plunging in recent weeks due to the cornavirus outbreak. Investors sentiment is starting to grow due to a broad based recovery in the world’s major stock markets, this is down to China reporting no new cases of the cornavirus pandemic. 

Recent weeks have seen sterling fall to its lowest levels since 1985 with investors putting their money into the dollar, which as seen as a safe haven currency. Furthermore, investors are not convinced by the British government’s plan to stop the virus which has also weakened sterling further. 

The outlook for the pound remains bearish, partly because of the countries large currency account deficit meaning the UK is importing more than they are exporting which is hurting the pound. Lastly, the pound did gain some respite on Tuesday after the dollar weakened but the overall outlook for the pound looks bleak. 

07:00 – GBP: CPI Y/Y – Forecast 1.7% from previous 1.8%,

Coronavirus, FX markets, UK interest rate cut, GBP, EUR, USD, BoE, Fed, Safe haven, Core Retail Sales, Retail Sales

• BoE cut interest rates to 0.25%.

• Fed cut interest rates.
• Safe haven currency.

• More stimulus to fight coronavirus impact.
• More stimulus to fight coronavirus impact.

• Core Retail Sales m/m.
• Core Retail Sales m/m.