The pound yesterday shrugged off data revealing the economy shrank by 2.2% between January and March, its worst performance since 1979. After an initial reaction, sterling was buoyed by the government’s spending plan announcement, which stated that £5bn of spending on infrastructure projects would be brought forward into 2020. The pound ended the day 1% up on the dollar and made a 0.7% gain versus the euro.
However, it should be noted that the statement underwhelmed markets as a whole and that sterling strength on the day could well have been driven by month-end and quarter-end flows. Large fiscal boosts, such as infrastructure spending, take time to feed through to the economy.
With the familiar topics of ongoing monetary policy at the Bank of England, second-wave infections and Brexit trade negotiations maintaining their domination of sterling concerns, the currency’s momentum could be short-lived.
There is no economic data due for release today.
GBPUSD opened at 1.2263, closing at 1.2382
GBPEUR opened at 1.0939, closing at 1.1011
The US dollar slipped slightly yesterday, as markets digested a more negative prognosis from the country’s top medical expert on the spread of the coronavirus.
Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell, in testimony before the Senate Financial Services Committee on Tuesday, suggested a willingness to do more for the economy as it battles the enormous fallout from the outbreak. Powell said the Fed can lower the minimum loan threshold, under the Main Street lending program, in the future.
However, this was overshadowed by remarks to a Senate committee by the head of the National Institute of Allergy and Infectious Diseases, warning of the risks of a surge in cases and stating that the country should not bank on the availability of a safe and effective vaccine. The US saw a 46% increase in new cases of the virus in the week ended June 28th.
Non-farm employment data is due this afternoon.
The euro looks stable, but was tested by data showing underlying price pressures dropped again in the eurozone. There remain ongoing questions about Brexit and the pace of economic reopening.
This morning’s Manufacturing PMI data has come in slightly better than expected, but is having little impact so far.
EURUSD opened at 1.1222, closing at 1.1251
