Good morning,
The British pound continued to slump yesterday, as the sell-off which began at the end of last month, battered the currency even further lower against its peers. Since the end of April, it has now taken a near 2% hit against the euro and over a 3% loss against USD.
There are currently major political and economic issues weighing on GBP. The first obvious one being the coronavirus outbreak slowing the economy down, with record-breaking data releases yesterday reflecting this. The Bank of England will, therefore, more than likely need to continue their aggressive policy stance, in order to stimulate the economy. This does beg the question as to whether interest rates could drop even lower than the 0.1% level that we are currently seeing.
Secondly, with the UK furlough scheme being extended until October, the government will have a larger budget deficit as time ticks on. Estimates put the scheme at £12 billion per month to fund the private sector and keeping unemployment from hitting record levels. As the economy started to stutter and demand for goods dried up, without the scheme we could have seen record-breaking numbers similar to the US.
The final elephant in the room with Sterling is Brexit and the looming deadline approaching where a No Deal Brexit is a very real possibility. If you are yet to read our recent Brexit blog release and why that is important to GBP, you can find that here.
With a very dangerous cocktail thrown into the market, it is hard to see any upside to Sterling and also difficult to see where traders will find encouragement to push the price higher.
In the US, there will be the jobless claims data released. Previously we have seen this weekly release shatter previous records. Although the number is expected to have reduced, with more Americans returning to work, it will show how quickly the economy is seeming to recover following the initial virus breakout.
Have a good day,
Author: Jack Nicholls, Relationship Manager
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