Over the course of yesterday’s trading session, the pound mounted a monumental comeback against most majors, pushing and closing above the 1.22 mark against the dollar and 1.1050 mark on the Euro. Three key factors assisted in the recovery, meaning pound holders can tentatively start to come out from behind the sofa after one of the worst months for sterling since the ’80s.
In part, sterling is buoyed by the market reaction to Government and central bank policy on softening the blow of Coronavirus regarding the markets, consumers and workers. However, as this is more of a global response – particularly regarding the $1.7tn package passing through the US Government as we speak – the pound on its own has been taking advantage of investor appetite in riskier bets in the market. Essentially, when market sentiment is weak, investors flood to safe havens like the US dollar for protection; when the sentiment improves, flows begin to pass into commodities such as gold, higher-risk currencies and stocks.
In addition to benefiting from more risk appetite from market makers, the pound also received a boost on the back of Thursday’s BoE meeting, where the announcement came that the UK, at this time, would not alter its interest rate lower and would stick to its current bond-buying programme, as mentioned in Jack’s update yesterday.
Finally, through none of its own doing, sterling benefited from the large scale dollar sell-off on the back of the worst unemployment claimant numbers ever released in the USA. To give some scope on this, the previous number of Americans claiming the benefit was around the 280,000 mark, with the largest one day surge previously sitting at 700,000 following Black Monday in 1987. Yesterday’s figure was expected to be in and around the 1 million mark; the actual figure was 3.28 million. The likelihood is that the US economy is already in recession and figures such as these do not bode well for other advanced economies, including Britain. Sharp recessions should shortly start to be confirmed globally, which is not hard to see with 1/4 of the world’s population currently living under lockdown orders.
We are still far from the final bell in the fight against Coronavirus, but at least for the moment, sterling can pull itself off the ropes and catch its breath before it faces another blow when its own unemployment claims figures are released on April 21st.
Have a great weekend,
Author: Joshua Haden-Jones, Senior Relationship Manager
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