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Worst GDP in 40 years

Worst GDP in 40 years


The Pound remained under pressure before the market opened yesterday as UK GDP plummeted by 2.2 per cent in a coronavirus-ravaged first quarter of 2020, the worst slump since 1979 and sentiment remained negative. The current account deficit for Q1 of 2020 reinforced fears for medium-term financing issues and underlying currency vulnerability. The market shrugged off Boris Johnson’s announcement of a £5.0bn boost for infrastructure spending as the measures were seen as a little underwhelming despite the bombastic rhetoric. The Pound remained under pressure; below 1.2300 on the Dollar with the Euro around 1.0940.

The Bank of England’s Chief Economist Andy Haldane stated his view that risks to the UK economy are more evenly balanced than in May but remain skewed to the downside. The rising “demand” (positive) has been more than offset by downside risks to employment (negative) and he will vote to adjust monetary policy at speed if needed.

Fellow member John Cunliffe stated that it would be wrong to “draw dogmatic lines on negative interest rates” while the impact on financial structures was a particularly acute issue.The market expectation rose that the BoE would move to additional quantitative easing and that the negative rates issue remained in discussion.

Sterling recovered strongly as the market close drew closer as position adjustment pushed it to a peak near 1.2400 against the Dollar and the Euro retreated below 1.1035. The gains faded this morning with underlying sentiment still negative but now with added trade fears.



The Dollar rose yesterday as fears over a global outbreak of a second wave of coronavirus cases has increased market demand for safe-haven currencies. As a result, the US currency has shown some recovery despite concerns over America’s domestic Covid-19 crisis.

The Chicago PMI index recovered slightly to 36.6 for June from 32.3 the previous month, although this was below expectations of 45.0 and the second-quarter figure dipped to the lowest level since 2009. Consumer confidence strengthened sharply to 98.1 for June from 85.9 in May and above consensus forecasts of 91.6. There was a strong increase in the present conditions index and a more moderate increase for the expectations index as the economic re-opening underpinned sentiment.



The headline Eurozone inflation rate increased to 0.3% for June from 0.1% previously and above consensus forecasts of 0.1%. The core rate edged lower to 0.8% from 0.9% which was in line with market expectations and markets maintained expectations of a very accommodative ECB monetary policy.

The EU also announced new travel rules and confirmed the rumours that the ban will continue on US residents. The move helped support the Euro, although there was a greater impact from month-end positioning and a wider Dollar retreat as underlying risk appetite improved. The Euro moved to highs above 1.1255, but failed to hold and has retreated back down to 1.1230 where it trades currently as we begin Wednesday session with strong German retail sales data already being released but having little impact.


Data to watch

11:00 – GBP – MPC Member Haskel Speaks

12:15 – USD – ADP Non-Farm Employment Change

14:00 – USD – ISM Manufacturing PMI

18:00 – USD – FOMC Meeting Minutes

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