Friday 28 February 2020 11:47 am Moneycorp Talk

Pound slips on coronavirus trade slump

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Senior Private Client Dealer at moneycorp

GBP / EUR Update

It was an up and down week for the pound. At the end of last week, it had made an average gain of 0.3%, but the positivity was short-lived. At the beginning of this week, retail sales showed a 0.9% increase after two months of decline, but the pound was pushed lower, perhaps because despite the increase the CBIs’ Distributive Trends Survey found that retail sales in February were “broadly flat for the fourth consecutive month” and “poor for the time of year”. The pound made gains on Tuesday, but there was no clear reason, and by Wednesday sterling was relegated to the last place after differences in approach between the EU and the UK in the Brexit negotiations became clear. The news that the Budget on 11th March may be the first of three fiscal presentations, which also pushed sterling lower. The assumption is that the current UK economy cannot support the PM’s manifesto promises without tax increases, and with the coronavirus having an impact on trade, there may be challenging times ahead for the pound.

Despite the challenges of the coronavirus impacting trade, the provisional PMIs from across Europe were better than expected. The market remains cautious that the long term effects including a decrease in demand and obstructed supply chains will have an impact on Q1 results. Despite the many challenges in Germany, “sentiment among German managers has improved somewhat” and “the Ifo Business Climate Index rose from 96.0 points (seasonally adjusted) in January to 96.1 points in February”. In the same report, the current assessment was above forecast at 98.9 and expectation were half a point higher at 93.4. Across Europe as a whole, sentiment remains largely unchanged and European Commission data show that confidence is improving, with an improvement from January. However, these results do not take the coronavirus into account. The euro may require further support and positive results in March to demonstrate the resilience of the economy and an upward trend following the economic slow-down.

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