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Pound fluctuates as OBR calls for more government spending, US dollar surges

business-articlesPound fluctuates as OBR calls for more government spending, US dollar surges
  • Call for greater UK government spending fails to boost pound
  • Euro slumps as Eurozone economic sentiment tanks
  • Safe-haven demand keeps US dollar on positive footing
Fears of UK economic slowdown undermine GBP
Demand for the pound weakened yesterday in spite of the head of the Office for Budget Responsibility’s call for the UK government to shore up the economy through increased spending.
With an increasing number of businesses struggling in the face of the Covid-19 crisis worries over the economic outlook continued to grow.
As long as markets see a significant risk that the UK could slip into a state of contraction in the first quarter of 2020 the potential for pound gains could prove limited.
Unless the government announces fresh spending pledges in order to limit the economic impact of Covid-19 GBP exchange rates look set to remain on the back foot.
Euro weakened by crashing confidence
The mood towards the euro soured sharply in the wake of March’s Eurozone ZEW economic sentiment survey.
The index plunged from 10.4 to -49.5 on the month, exacerbating existing concerns over the underlying potential of the Eurozone economy.
With momentum looking set to slow further over the coming months, with an increasing number of Eurozone states going into lockdown, support for the single currency looks unlikely to recover.
If January’s Eurozone trade surplus narrows as significantly as forecast the euro may record further losses against its rivals this morning.
US dollar benefits from market anxiety over Covid-19
The US dollar found fresh support as fears for a global recession rose.
With safe-haven demand swelling once again USD exchange rates shrugged off the impact of a surprise decline in advance retail sales.
Even if this afternoon’s housing starts figure shows another decline on the month this may not be enough to knock the US dollar off its positive footing.
Market anxiety looks set to keep USD exchange rates biased to the upside for the foreseeable future as governments scramble to respond to the economic threat of Covid-19.
Upcoming Data:
Wednesday, 18th March 2020
10:00 EUR Eurozone Trade Balance
12:30 CAD Consumer Price Index
12:30 USD Housing Starts
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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