Concerns over coronavirus’ impact on UK businesses is weighing on the Pound on Tuesday ahead of tomorrow’s UK Budget. Meanwhile the dollar is advancing following Trump’s announcement of a stimulus package.
At 14:15 UTC GBP/USD is trading -55 points lower at US$1.3020, snapping a 5-session winning streak. The is at the lower end of today’s range of US$1.3017 – $1.3134.
Pound Drops As Business Confidence Evaporates
Demand for the Pound has taken a hit on Tuesday as UK business confidence crumbles amid the ongoing coronavirus outbreak. According to the Institute of Directors business leader’s confidence has evaporated, wiping out the Boris Bounce, the jump in business confidence that the UK experienced following the decisive Conservative win in December’s general election.
The survey showed that 20% of UK business leaders considered the coronavirus outbreak posed a severe threat to their business. 40% saw the threat as moderate.
Investors will now look ahead to the UK Chancellor Rishi Sunak’s Budget tomorrow; it was only a month ago that Rishi Sunak took over the job as Chancellor. Within the month the conditions which the UK is facing have changed dramatically.
Pound investors will be looking to the Budget for firm signs that the Government is prepared to support the UK economy through what is expected to be a very hard but supposedly temporary time. The right level of spending from the Government could ensure this temporary blip doesn’t become a longer-term entrenched slowdown.
However, should the markets consider that the Budget doesn’t go far enough, the Pound could fall.
Dollar Drives Higher On Trump’s Spending Talk
The Dollar was in rebound mode on Tuesday as risk sentiment improved. US stocks are trading higher on the open, as are US treasury yields and the US dollar.
The prospect of substantial economic stimulus in the US is lifting sentiment on Tuesday. President Trump promised a “major” and “very dramatic” economic stimulus package. This s the first time that Trump has sounded serious about coronavirus, which has now killed 26 and infected 666 in the US.
The markets are still awaiting details. If Trump were to announce broad stimulus measures, the dollar could jump higher. Broad based fiscal stimulus combined with monetary stimulus (Fed rate cut last week) could give the US economy a big boost. Just what Trump needs heading towards the November elections. Again, as with the UK should the measures be considered inadequate, the dollar could fall.
