The week ahead:
- German industrial production data (Tuesday, 7:00am)
- UK Chancellor Rishi Sunak’s economic update on recovery plans (Wednesday)
- US initial jobless claims data (Thursday, 1:30pm)
Highlights from last week:
- Sterling/euro recovers from 3-month lows
- Boris Johnson unveils £5bn homes and infrastructure spending boost
- US economy adds 4.8 million jobs in June, jobless rate falls to 11.1%
The week ahead: Quiet data week, government’s recovery plans in focus
A light domestic calendar this week suggests sentiment towards sterling is likely to continue to be swayed by Brexit developments and the domestic impact of the pandemic in the near term. The Halifax House Price Index (released on Tuesday at 8:30am) will offer a gauge of price trends in the UK housing market. On the political front, UK Chancellor Rishi Sunak is due to provide an economic update on Wednesday setting out the next stage of the government’s plans to aid the economic recovery.
Euro zone data releases are also relatively sparse in the week ahead, although German economic figures will be under the spotlight. Industrial output in Europe’s biggest economy registered a record drop in April as the pandemic forced manufacturers to suspend activity. May’s industrial production figures will be released on Tuesday (7:00am). German international trade data (Thursday, 7:00am) will offer insights into the country’s exports performance in May.
Employment and inflation trends are amongst the key metrics that US policymakers will be assessing as they seek to mitigate the economic impact of the coronavirus crisis. The latest initial jobless claims figures (Thursday, 1:30pm) will be closely watched for signs that pandemic-induced job losses remain heightened despite moves to re-open the US economy. Producer price inflation data will follow on Friday (1:30pm).
Last week recap – Sterling recovers from 3-month low versus the euro
The pound came under sharp downward pressure at the start of the week, sliding to a 3-month low against the euro and a 1-month low versus the US dollar.
But it subsequently overturned these losses, with Boris Johnson striking an optimistic tone in a speech outlining the government’s post-coronavirus recovery plan. Mr Johnson unveiled a £5bn “new deal” to build homes and infrastructure in an effort to support the recovery.
Bank of England economist Andy Haldane also sounded upbeat on the UK’s recovery prospects, noting that the recovery in the UK and elsewhere had materialised “sooner and faster” than expected. However, he also noted that it is too soon to know whether household spending would be resilient enough to prevent unemployment from climbing, or conversely whether higher unemployment levels would be the dominant factor and act to constrain consumer spending.
Euro zone inflation edges higher in June
The annual euro zone inflation rate edged up to 0.3% in June, from 0.1% in May, as energy prices recovered with the lifting of lockdown restrictions during the month. However, inflation across the region has slowed sharply this year (from 1.4% in January) and is still well under the European Central Bank’s (ECB) target of close to but below 2%.
Subdued inflation pressures suggest the ECB has room for manoeuvre as it tries to support the euro zone economy from the effects of the pandemic. The ECB increased its quantitative easing measures by €600bn last month in response to the crisis, taking its Pandemic Emergency Purchase Programme up to €1.35 trillion.
At midday on Friday, a telephone conversion of £20,000 into euros via our Currency Service would have purchased €21,990.
US employers add 4.8 million jobs in June
The US dollar found some support against sterling on Thursday afternoon after June’s US non-farm payrolls data showed more workers are regaining employment after the coronavirus-led downturn in March and April. The economy added 4.8 million jobs last month. This was comfortably ahead of expectations, with the jobless rate falling to 11.1% in June from 13.3% in May.
However, this is still far above the pre-pandemic levels (the unemployment rate had been at a 50-year low of 3.5% earlier this year) and there will be concerns that a recent resurgence in US coronavirus cases could impede the employment market recovery going forward.
At midday on Friday, a telephone conversion of £20,000 into US dollars via our Currency Service would have purchased US$24,700.
Canadian economy shrinks at unprecedented rate
The Canadian dollar weakened versus sterling after data on Tuesday revealed Canada’s Gross Domestic Product (GDP) shrank by a record 11.6% in April. Added to the 7.5% contraction in March, the decline over the 2-month period was unprecedented in scale (by comparison, this is four times the size of the contraction that Canada’s economy experienced during the 2008/9 financial crisis).
However, there are indications of a limited rebound in activity in May as the economy started to reopen, with Statistics Canada’s preliminary estimate for May pointing to a 3% increase in GDP.
At midday on Friday, a telephone conversion of £20,000 into Canadian dollars via our Currency Service would have purchased CAD$33,502.