The Pound continued to weaken over the last 24 hours as Chancellor Sunak said it is ‘very likely’ that the UK will face a ‘significant’ recession. Consumer spending has fallen by over a third during the lockdown, with travel-related purchases halving and spending in bars, clubs and pubs dropping by 97%.
A Treasury paper has indicated that tax increases and cutbacks in government spending are options being considered to cut the budget deficit that is estimated to be £337 billion after the pandemic. Bank of England Governor Bailey will be making a speech today at 11:30pm, and any of his comments are likely to be scrutinized by the market which could cause volatility for the Pound.
Eurozone industrial production came out better than expected at -11.3% compared to the predicted figure of -12.3%, which gave the Euro a boost against the Pound. Italy has signed off on a fiscal stimulus bill worth €55 billion which has also helped the common currency. German constitutional court judges have backed their decision to question the reasons behind the ECB’s quantitative easing programme, warning that tensions could escalate. This in turn has kept the Euro from making significant gains against the Dollar.
Federal Reserve Chairman Powell believes that the US faces a very slow recovery if the government does not implement further fiscal stimulus and expects the unemployment rate to stay high. He also rejected the idea of pushing interest rates into the negative territory and suggested the other FOMC members are also on the same page. President Trump has claimed that the impact of the coronavirus on the US economy is 100 times stronger than the US-China trade deal, increasing tensions further between both parties and strengthening the greenback. US unemployment claims data are due at 1:30pm and is expected to show an increase of 2.5 million jobless claims which is less than last week’s reading but would still show the impact the pandemic has had on the US labour market.