WILL THE DOLLAR RISE TO RECOVERY
Data releases on Wednesday are set to show that the UK economy is over 20% smaller than Q2 last year, with a monthly year-on-year contraction of 18.5%. The number of employers expecting to make redundancies in the UK has increased from 22% to 33% for the three months to the end of September. The quarterly Labour Market Outlook suggested that confidence was at its lowest since the survey initiated in 2013 and although the number of number of employers looking to take new recruits in the next 3 months was up to half from 40%, the number looking to make cuts is up from just over 1 in 5 to now 1 in 3.
With little market data set to be released this week, variables for the GBP/USD currency pairing will remain with the key catalysts of Brexit, Coronavirus and the recent contentious executive orders of the Trump office. Ceasing business with the likes of TikTok and WeChat were among the first, in addition to sanctioning the Hong Kong leader Carry Liam and finally offering stimulus of $400 unemployed benefits and aid to those in rented accommodation and repaying student loans.
However UK jobs data may hamper the gains made against the Dollar, should the unemployment rate surpass that of the general forecast of 4.2%, which may be of more significance due to the slow winding down and inevitable cessation of the Governments £33.8bn Furlough Scheme. This is a delicate task to undertake however as it is believed roughly 9 million workers are supported by the initiative, for which disengaging prematurely could result in a wave of unemployment topping 10% by the end of 2020 according to the institute for Economic and Social Research.
BANK OF ENGLAND REMAINS OPTIMISTIC ON EMPLOYMENT RATES
The Bank of England appear to have a somewhat more optimistic outlook on the employment statistics, envisaging unemployment to reach that of 7.5% by the end of the year, without offering insight into the prospect of gaining employment once again in the aftermath of support schemes terminating. A marked increase in unemployment may well result in a change of monetary policy and a further expansion of the £750bn quantitative easing program.
This outlook shows that the pound could come under immense pressure this week while the Green-back seems intent on staging a recovery.
EUR/USD is currently trading at 1.1765, down on the day, this is due support rising for the safe-haven dollar from increased Sino-American tensions, although the Phase One trade deal remains intact and investors are confident that both sides will stick to the accord, but any disruption is likely to favour the safe-haven currency.
Outbreaks of coronavirus in the US seem smaller and more localised, cases and deaths remain higher than that in Europe however the gap is narrowing and there are tentative signs of the curve dropping which may weigh on the pairing.
A NOTE ON THE EURO AND TURKEY
Volatility may be in-line to increase in the coming days between the pound and the Euro, GBP has witnessed a multi-month downward trend and there has largely been no variables to contest its new norm between that of 1.10 – 1.1140. If the single currency were to return to the recent highs witnessed against the greenback then GBP v EUR would still trade below 1.11. However the looming risk of a currency collapse recurring with the Turkish Lira may proof testing, especially to EUR v USD as a primary conduit through which a squabble would be played out.
A more disorderly sell off for Turkish Lira may cause larger ripples similar to what was witnessed in 2018 and with mounting concern of a “second wave” for the coronvarius pandemic in Europe the outlook may be dull. A currency analyst at MUFG is targeting a move down for Euro vs Dollar to 1.16 and if this were to hold true, it could see the Pound vs Euro lift to the likes of 1.1250 if the pound could equally maintain its position against the Dollar.
The Turkish currency for the last decade had depreciated against the Dollar by 60% year-on-year, and usually within the summer months. Eventually leading to crisis levels of depreciation in 2018 amid a geopolitical spat with the US. However not so obviously was the tank experienced between Euro vs Dollar rates, mainly attributed to increased to market fears of the widespread loan exposure Banks within Europe may have to the Turkish economy. Large slumps more recently for the Lira have had eyes turning East and if support to prop-up the currency dissipates we may be left holding on as the shockwaves are felt in Europe and beyond.