Recent weeks have seen markets the world over experience record levels of volatility. From the Gold price rush, to the sell-off in Crude Oil. Many markets have been impacted by the COVID-19 Pandemic. Indices and individual equities have seen huge drops in value as nations struggle to find solutions to slow the spread of the now-infamous virus, which has infected over 350,000 people the world over.
The UK, one of the nations impacted, had struggled to implement social separation policies that required residents to “stay at home”. Yesterday saw that change with Prime Minister Boris Johnson taking the decision to enforce a 3 week lockdown of the Kingdom. With this now in full effect, what does this mean for UK related markets like FTSE 100 and GBPUSD.
Like most major indices the FTSE has been hit hard by the situation surrounding the Coronavirus. 8 years of growth have effectively been wiped out in the space of 2 months worth of trading. The likes of Chancellor Rishi Sunak, and Andrew Bailey, Governor of the Bank of England have thrown the fiscal kitchen sink at markets to help ease the economic “mess” the virus has created.
So far we have seen the freefall show signs of turning into consolidation, with some of the actions taking pushing the FTSE from a low of 4730, to now trading at 5402. Providing the lockdown shows signs of assisting the recovery of not only those affected, but providing time to the government in finding a cure, could we see a twist of faith in the value of this index, as investors eye up the potential gains from investing now?
Indications that cable would fall lived long before we heard of COVID-19, going back to when Brexit was the hot topic. However, we did not expect the fall to put us to lows not seen since 1985. With rates in this pair for the last 30 years, nowhere near parity, this drop was one of the reasons why we have seen both the FED and the BOE not only cutting rates but planning on QE potential programs also. Post news of the lockdown, Sterling gained on the Dollar moving from a low of $1.14752 – $1.17893.
With the BoE set for a super Thursday meeting where rates and Asset Purchasing Targets are to be decided upon, we may see more moves still to come.
Senior Market Analyst