More and more COVID-19 cases, the re-closure of the State of Victoria in Australia and restrictions in some US cities, and the biggest fall in UK GDP in over 40 years. These are events that the financial markets can live with.
The great fall in GDP and the weakness of the pound
The UK economy contracted by 2.2% in the first quarter of 2020, with no change in GDP in the fourth quarter of 2019. The market consensus was for a 2.0% fall in UK GDP. This was the biggest fall in UK GDP since the third quarter of 1979. Restrictions related to the coronavirus epidemic in mid-March forced companies to close down and consumers to stay at home. Private consumption, government spending, and investment in fixed assets fell more than initially thought, while the negative contribution of net trade was revised downwards, according to published data.
The British pound in the foreign exchange market seems to remain weak, declining to either the US dollar or the Polish zloty. Traders quoted by Bloomberg also report that the pound seems to be falling for the third day in a row as the broad appetite for risk has fallen, and the rebalancing of positions among financial institutions at the end of the month and the end of the quarter has increased the flow towards the US dollar.
Australia closes, USA does not open
The Australian dollar, which has been rapidly increasing in value recently, may be negatively affected by the decision of the state of Victoria. The state has imposed a four-week lockdown in the Melbourne area to stop coronavirus infection. Information from the Reserve Bank of Australia (RBA) today indicates that the Australian economy is likely to need continued fiscal and monetary support as the impact of COVID-19 is likely to continue.
The World Health Organization, in turn, warned that the worst coronavirus pandemic is yet to happen due to a lack of global solidarity. Further areas of the US have taken steps to reduce the scale of the reopening by closing down bars in Arizona and halting plans to open restaurants in New Jersey.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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