Daniel Wright
July 17, 2020


The pound ends the week slightly lower against the euro than at the start of the week, despite a narrow trading range. UK unemployment held steady at 3.9% yesterday in the three months to May which was better than the forecast 4.2%. However, there is a strong suggestion that the worst is still to come.image

Yael Selfin chief economist at KPMG UK said the figures represented “the calm before the storm… but as the Job Retention Scheme unwinds in coming months, the full impact of the recession on unemployment is likely to be revealed.

With no UK economic data releases today and a quiet week next in the calendar, next week’s focus will largely centre on the state of the ongoing Brexit trade negotiations. The Financial Times has reported that recent trade discussions have left some commentators believing that a trade deal may not be possible or that the UK will end up with a very restricted agreement.

Kaspar Hense, a bond fund manager at BlueBay Asset Management said:

We will see a hard Brexit for sure. Markets haven’t yet priced in the significant impact on the City of London and the risks to the UK economy. The only way out will be a weaker pound and the Central Bank, to some extent, devaluing the currency.

He believes the markets are underestimating the risk that UK financial access to EU markets will be curtailed and the effects of the probable response from the Bank of England to a hard Brexit. He added that a 10% slide in sterling against the euro is the most likely result.

UK public sector net borrowing figures for the month of June will be released on Tuesday, and could make for interesting reading considering the extent of the government packages to keep the economy afloat.

After Rishi Sunak’s announcement last week to support the economy further, the level of public borrowing is expected to climb to £350 billion, almost double the amount that was seen at the peak of the 2008 financial crisis. To put things into perspective this new deficit can only be compared to the deficits seen during wartime and may have an overriding impact on the performance of the economy and hence the pound.


The European Central Bank held interest rates steady yesterday as widely expected, and maintained the emergency Coronavirus stimulus package. Last month, the ECB increased the Pandemic Emergency Purchase Program by €600 billion to €1.35 trillion until June 2021. ECB President Christine Lagarde said that “despite a significant, though uneven and partial recovery, the outlook remained uncertain” due to fears of a second wave of infections.image

EU leaders will meet today for the latest summit although it is not expected that that an agreement will be reached today on how to fund the recovery from COVID-19.

Any signs that a deal can be reached is likely to create volatility for the euro.  Christine Lagarde has signalled in recent weeks that she is confident a deal will be reached eventually.

She did comment that debts are going to “massively increase” not just for businesses but for countries too. She also added that “maturities are going to be in a different category to what we have been used to” which the Financial Times suggests could mean that loans may be taken out over longer periods to help with funding.


The US economy received welcome news yesterday after jobless claims arrived better than expected with 17.3 million Americans receiving funds.

The number is the lowest level since the first week of April and indicates businesses are rehiring workers. US retail sales also performed better than expected with a jump of 7.5% in June. To recap, the month of May saw a larger jump of 18.2% but whether this growth in the retail sector is sustainable will depend on the latest COVID-19 developments in the US.image

There are concerns that this uplift will stall if individual states must impose restrictions that will negatively impact on retail.

The US dollar could be in for a spell of high volatility after the huge and sharp pick up in COVID-19 cases in Texas, Florida and California, raising fears that the economic recovery in the US, the world’s largest economy, could be stalled. 

Further volatility for the dollar will also be seen as the US Presidential election approaches. A national poll yesterday put Democrat Joe Biden ahead of Donald Trump with a 15% lead.