Late last night, news emerged that the US Senate had failed to find agreement on the proposed $1.4tn package aimed at helping Americans through the continuing coronavirus pandemic. Republicans and Democrats debated for hours before a series of inconclusive votes meant the Asian trading session, which opens at 22:00 GMT on Sunday, was able to sell the fear that agreement would not be reached before Wall Street opens trading at 14:30 GMT today. This sell-off caused another 5% dip on US stock market indicators, which usually reverberate globally, with London still due to open before trading before New York starts.
This news helped halt the slide on EUR/USD, as the market starts to pivot away from ‘The dash for cash’, which has pumped up the dollar since the pandemic began. The pound has also managed to seemingly stop the rot against both the euro and the dollar, as the markets looked favourably on the raft of measures announced by the UK Government at close of business on Friday. Desperately needing to offset the economic damage caused by the choice to also close thousands of cafes, pubs, clubs and other meeting places; the Government pledged to plug the gap in wages lost for workers, those with mortgages and removed VAT and businesses rats for those still open. This radical package is aimed at avoiding the worst aspects of the credit crunch seen in the aftermath of the 2008 recession, where a lack of lending stifled a market rebound until years later.
The fate of sterling now will be on what terms the market views the Government’s gargantuan intervention. If it is seen in the short term as a world-leading response started early that is replicated worldwide, markets could view the UK as the most likely first rebounder in the market for investors to take advantage of. Conversely, if markets see the commitment of huge amounts of GDP spending as a danger to Britain’s creditworthiness post-pandemic, then, in the long term, the huge borrowing repayments could suppress the UK’s recovery and sterling’s chances with it.
Have a great day,
Author: Joshua Haden-Jones, Senior Relationship Manager
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