Over the course of yesterday’s London trading session, the pound pushed up to monthly highs against the Euro and the Dollar, pushing its recovery up towards the pre-coronavirus crash lows seen in March.
As mentioned in my article last week, a good barometer of sterling’s recovery chances can be seen in the return of investment flows to stock markets, particularly the US Dow Jones index. Of course, it isn’t as easy as looking at one to forecast another, but essentially the thinking goes that as more desire for risk re-enters the markets, the more risk related currencies such as sterling will rise, as investors look to make bigger returns again. The news that China is starting human trials of a new vaccine for Covid-19 and some European countries are now easing lockdown restrictions built into the narrative that the worst shocks, in hopefully both health and currency arenas, are behind us.
This does, of course, spell bad news for US dollar holders, as the 35-year lows of March are now seemingly well behind us and more drift from the safety of the dollar occurs across the board, with the greenback forfeiting another 1.52% against the pound and 0.88% against the euro in yesterday’s trading alone.
The key figures which could dent the feeling of cautious optimism are the GDP releases which are spread throughout the month, each pointing the damage done by lockdowns in each country worldwide. On top of this, despite the stock markets fixation on an instant rebound, the IMF announced that when the damage done by lockdowns on the global economy is confirmed by the GDP releases, we could be in for a recession deeper than one seen since the Wall Street cash of 1929. The USA’s release is due on the 29th, the EU follows on the 30th and the UK’s falls on May 12th – after that, it will be a race to see who can recover the fastest with currencies responding accordingly.
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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