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Sterling hits two-week low as market sentiment sours

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22 April 2020

Written by
Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The pound was fragile to a shift in global sentiment on Tuesday, falling to its lowest level in two weeks against the dollar amid the collapse in oil prices and sell-off in stock markets.

S
terling slipped below the 1.23 mark yesterday, a move lower of almost one-and-a-half percent at its peak. Moves in the UK currency have mirrored shifts in investor sentiment since the onset of the COVID-19 pandemic, with the pound rallying during times of market calm and selling off during renewed investor anxiety.

The dramatic move lower in oil prices this week has certainly triggered a period of the latter. US oil prices fell to minus $40 a barrel on Monday, although have since recovered dramatically to back above +$11 at the time of writing. Global oil prices have, however, continue to tumble in the past couple of days, with Brent crude oil now trading at a two decade low around $17 a barrel.

UK labour data out yesterday was better-than-expected, with only 12.2k people claiming unemployment benefits in March versus the more than 170k consensus. The issue here is that this number only covers the period up to 12th March, i.e. well before the lockdown was put in place, and is therefore largely irrelevant. Tomorrow’s April PMI data, expected to fall to a fresh record low, and Friday’s retail sales data for March, should be much more noteworthy.

GBP

Euro holds its own as European virus cases ease

The euro has been relatively rangebound in the past four or five session or so, despite the dramatic moves witnessed in oil prices so far this week.

While the euro would ordinarily sell-off versus the dollar during such times of market turmoil, a stabilisation in European virus cases appears to be preventing any meaningful moves lower in the common currency. New daily cases of the virus in both Spain and Italy, the two worst affected countries outside of the US, have continued to ease in the past week, suggesting that the worst of the virus may now be over in the Euro Area. Cases in the US do, however, continue to remain sky-high, with no signs yet of any meaningful move lower. Should this trend continue in the coming week, then we may start seeing a more substantial move higher in EUR/USD.

A dump of economic data will be released on Thursday. We will be paying close attention to the April PMIs out of both the Euro Area and the US, both of which are almost certain to fall to new record lows given the previous months data covered a period pre-lockdown. Aside from that, investors will be paying close attention to the weekly US jobless claims data covering the period up to 17th April. Another giant week of unemployment benefit claims are expected, with the market bracing for another reading in excess of 4 million.

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