Sterling had a bad day yesterday and lost value versus both USD and EUR.
The fallout from the plunge in oil prices and subsequent move away from riskier assets had a negative impact on the pound. Against the dollar, GBP was down 1.20% at its lowest position, the worst in 13 days, dropping as low as $1.2253. Versus the euro it was down around one percent, 1.1289 being the daily nadir. In early trading today, the pound has recovered some of its lost ground.
The unemployment benefit claims for March yesterday that showed a 12,100 increase, way below the median forecast of 172,500, was shrugged off by investors. The currency is being driven more by risk appetite and fallout fears, rather than economic data.
The UK is facing what is anticipated to be its worst recession in 300 years. Sterling is also being anchored by concerns with Brexit trade negotiations, due to be conducted by tele-conferencing over the next three months.
CPI data earlier this morning came in as expected.
GBPUSD opened at 1.2395 and fell to 1.2253, before closing at 1.2275
GBPEUR opened at 1.1438 and dipped as low as 1.1289, before closing at 1.1317
The US dollar has benefited from the crash in oil prices, with investors fleeing riskier assets and moving back to the safe haven of the dollar. The plunge appears to have halted a rebound in stock markets as investors eye a longer and slower global economic recovery.
The US dollar Currency Index, which measures the greenback’s strength against six major currencies, was up 0.07% at 99.912. However, this is down from the three-year high of 102.97 hit in mid-March, as the rapid deployment of monetary stimulus measures by the Federal Reserve eased the pressure on dollar funding.
The euro yesterday broke out of its recent tight trading range versus the pound, gaining around 1%. This, however, was all to do with sterling’s reaction to global risk appetite and economic concern, rather than any underlying euro strength. This was demonstrated by its reaction versus the dollar, actually losing some value on Tuesday before closing at much the same position at which it opened.
The gains against sterling could be short-lived, with all eyes on tomorrow’s video summit of EU leaders on how to singularly address the economic fallout from the crisis. Expectations are low that there will be any agreement and a united front is not anticipated, which could heap pressure on the single currency
EURUSD opened at 1.0837 and closed at 1.0847