We have endured a tempestuous relationship with the Pound recently. Two weeks ago, Sterling was being aggressively sold off, derived from Brexit uncertainty, however a combination of Chancellor Rishi Sunak’s treasury stimulus, a more positive economic outlook and Brexit optimism have helped boost the value of the Pound.

We saw the Pound rise to three-week highs on Friday against the Euro, up through 1.1185 before retracing slightly, which is a big move up from the three-month lows of 1.0901 just weeks ago.

The rally did slowly pick up moment, initially being triggered by month end flows, where a lot of FX positions were realigned by Fund Managers, this was then given a boost when the Chief Economist from the Bank of England, Andy Haldane, noted that the initial recession was nowhere near as bad as initially feared, and it is likely that we are going to see a ‘V’ shaped recovery.

There are immediate risk events for GBP to consider, least of all, the May estimate of GDP will be looked to for evidence of the nascent economic recovery that looks underway. We have had a very limited opening of the economy up to now which results in a very modest expectation of a bounce back in output, forecast at 5.5%, after a 20.4% fall in April. The UK printed 1.8% growth in May, and with it, went Andy Haldane’s optimism of a ‘V’ shape recovery, as now we focus on the ‘U’. To compound the severity of the recession, the data also showed that the UK economy shrank over 19% in March-May, and contracted by a quarter since the pandemic began.

The UK has managed to prevent, at great cost to the taxpayer, a colossal rise in unemployment figures, which is a true testament to the success of the furlough scheme. We are expecting employment figures for the three months to May later this week, job losses are projected at 253k, which could see the unemployment rate tick up slightly to 4.1%. A big indicator to the health of the labour market will be whether the Benefit claims in June show any major increases in demand. The figures which followed are disconcerting. The number of paid employees in the UK fell by 649,000 between March and June, while job vacancies disappeared too. The numbers of hours worked dropped at the fastest pace on record, suggesting that the headlines jobs figures underestimate the true level of unemployment. 1.4m is the number the Benefit claim shot up to, which includes people on jobseekers allowance and Universal credit, yet another nod to the true state of the labour market, and signs the furlough damn is beginning to crack.

Finally, as we have seen oil prices increasing, the June print of CPI is anticipated to show headline inflation to have picked up slightly, however the rate may moderate further should we see any further weakness in domestic demand.


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