On Sunday evening, PM Boris Johnson announced that, in short, the UK lockdown will remain until June at the earliest. Some industries (i.e construction) will be able to return to work immediately with social distancing measures in place. Unlimited exercise will now be allowed, but in reality, no massive changes.
The Government are working on a staged system depending on the “R” rate of the virus, which makes sense- and providing that the death and infection rate keep going down- then the reopening of the UK will become more likely.
Last week, Sterling suffered losses due to our lockdown continuing through the month of May- which unfortunately shows the short-sightedness of the markets- coming out of lockdown is great, but if it means a second spike (Not just to health, but on the economy) then it isn’t worth it, evidently.
We saw GBPUSD drop from 1.25 to 1.2270, and instantly snap back to 1.24 on Friday (As I mentioned before in previous articles, the 1.23 area is a strong buy for GBPUSD, so it would take really bad news to keep the exchange rate below that level.) The main reason for the drop is that the BoE has alerted that they will be doing more quantitive easing from next month, and as we know, printing more money devalues a currency- so it’s natural the Pound would weaken.
As I am writing this article on Sunday, I cannot comment on how the market is going to react to Boris Johnson’s speech, but by the time you receive this, it will be clear.
Many analysts are predicting that the GBPEUR rate should fall to around 1.12 due to lockdown disappointments in the UK, and with many EU nations talking about reopening their countries, I can see the logic in this- but nothing to bank on- the majority of the UK wanted to extend the lockdown, so the general public feel will not be of disappointment right now.
As far as data is concerned, this Wednesday the UK will release GDP figures for Q1, which are expected to show a contraction of -2.5%, which of course will be nothing compared to what is expected for Q2. This, of course, will technically mean a recession for the UK, and on this, I do feel Sterling may weaken further over coming months.