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UK Study Boosts Vaccine Hopes

UK Study Boosts Vaccine Hopes

GBP The Pound was boosted by improved risk appetite and the positivity surrounding a potential coronavirus vaccine which offset fundamental economic concerns. Andy Haldane, Bank of England chief economist, stated that the bank was reviewing policies; weighing up negative rates and the potential for further asset purchases and forward guidance. Haldane also stated that the economy had made up around half of the output lost in March and April and that present economic growth was around 1.0% per week. He did express concern over the labour market and external MPC member Silvana Tenreyro added less positive comments on the outlook for economic fundamentals. 

After the US started trading Sterling got a second wind further with the positive news on the Oxford vaccine trial. The Pound strengthened to rise above 1.2650 on the Dollar while the Euro retreated to near 1.1080. UK/EU trade talks are set to resume in London today, and markets will be scrutinising any comment. In today’s data, UK government borrowing fell to £34.8bn in July, down from £54.5bn in June with Sterling creeping higher, near 1.2680 against the Dollar.

 

USD

The Dollar secured a slight recovery, although underlying confidence remained fragile, especially with global equity markets holding firm. There were no major US developments during the day yesterday with markets continuing to monitor coronavirus developments.

There are strong expectations that the Federal Reserve will maintain a very accommodative monetary policy which limited underlying dollar yield support.

US coronavirus developments remained important with mixed developments at state level. The US overall posted a further increase in cases of over 63,000 with some slowdown in California. There were further concerns over the economic impact, although risk appetite strengthened further in New York following positive reports on coronavirus vaccine developments. The US Nasdaq index posted further gains which continued to improve the Dollar.

Markets will monitor US fiscal developments closely with pressure for a further fiscal package to replace measures which expire at the end of July.

 

EUR

The EU current account surplus declined to 8.0bn Euros from a revised 14.3bn the previous month, although the 12-month surplus still amounted to 264bn and 2.2% of GDP and the surplus will provide underlying Euro support over the medium term.

The Euro maintained a strong tone in early trading yesterday and jumped against the Dollar as the 750bn Euro fund was confirmed. The funds will be raised by the EU Commission using its AAA rating while changes will be added to EU rebates. After briefly strengthening, the common currency dipped lower with the outcome already priced into the market with the Euro currently trading around the 1.1450 mark against its US counterpart.

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