According to the news wires, it was a pretty eventful week, but looking at the exchange rates, there wasn’t much movement at all. The main headline I am sure we all saw this week was the fact that the UK officially hit a recession in Q2. (I am sure this didn’t surprise anyone seeing as though the country was shut down through that period). Now, the main thing to note here, is that we are now in Q3, and recovery is happening, and the reports are that the economy grew by 8.7% in June, and I am sure there was substantial growth in July. Another thing to look at is UK house prices; they are rising. Due to the new stamp duty rules, prices keep going up and the housing market is strong in the UK, this is usually one of the first things to go in a recession- so though the numbers look bad, it is not something we can see on the wider scale just yet. To not sound negative, this is more what I will be looking for post-October into 2021 to see if mortgage defaults have happened etc- right now, people have saved a lot during lockdowns, furlough has kept people’s bills paid, and many mortgage holidays have kept people from defaulting, so we have a skewed view right now.
Back to Sterling exchange rates, the Pound to Euro rate held the 1.10 area which is key, and Cable prices managed to hold 1.30- which shows that Sterling is a little more resilient than it used to be, and of course, there are a number of reasons why.
First of all, Brexit trade negotiations seem to be getting a little better, UK Chief Negotiator, David Frost seems very optimistic that a trade deal can be reached with the EU in September, which is great if it happens, but as we have seen with Brexit, you have to be very careful as things seem to change at the last minute very frequently, so until a deal is signed, let’s not get too excited just yet- though I am cautiously optimistic a deal will be reached this year as I explained last week.
The next reason is we are in a broad “risk-on” market, stock markets keep rising, along with commodity prices, after the fiasco with Oil prices a few months ago, prices have more than doubled, along with precious metals such as Silver. As long as the markets keep going up, this will be supportive for Sterling prices, as if it sells off, people usually end up in the U.S Dollar. (The sell off will happen, it’s just about when- but I think it is unrealistic we see anything major before the Presidential Election). The U.S Dollar is still weak, and until Congress has approved a stimulus package, there will be a lack of confidence in the U.S economy.
As far as economic data is concerned we haven’t got a packed week, but I have listed below some that could be of interest;
- August 19th (Wednesday)- UK CPI (Inflation figures
- August 19th (Wednesday)- EU Core inflation rate
- August 19th- (Wednesday)- Canada Core inflation rate
- August 19th (Wednesday)- FOMC Minutes (U.S)
- August 21st (Friday)- UK Retail Sales
- August 21st (Friday)- UK Flash PMI- Manufacturing & Services
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