EUR/GBP extended gains from the previous two trading days on Thursday, touching a fresh one-week high, as market optimism over UK’s recovery took a hit after an ominous forecast from the OECD.
The Sterling weakened against the common currency after a report by the Organisation for Economic Cooperation and Development (OECD) stated UK’s economy might take the worst damage from the coronavirus crisis among all developed countries. The report projects an 11.5% drop in UK’s Gross Domestic Product this year, which compares with a 6.6% projected decrease in German GDP, an 11.4% contraction in French GDP, an 11.3% drop in Italian GDP and an 11.1% slump in Spanish GDP.
Shadow Chancellor of the Exchequer Anneliese Dodds blamed the gloomy forecast on UK government’s “failure to get on top of the health crisis, delay going into lockdown and chaotic mismanagement of the exit from lockdown.”
The OECD also said the situation for Britain could worsen even further, in case the country does not manage to secure a lasting trade agreement with the European Union and access to the single market.
“The failure to conclude a trade deal with the European Union by the end of 2020 or put in place alternative arrangements would have a strongly negative effect on trade and jobs,” the OECD said, as it forecast a rise in UK’s unemployment to nearly 9%.
In addition, ratings agency Moody’s stated that a no-deal Brexit would “significantly damage the UK’s potentially fragile recovery from its deepest recession in almost a century.”
With no relevant macroeconomic reports scheduled to be released from the UK today, market players will likely now focus on tomorrow’s crucial GDP, manufacturing production and trade balance data. Manufacturing output is expected to contract at an annual rate of 19.9% in April after a 9.7% slump in March, while the country’s GDP is expected to shrink 22.6% year-on-year in April after a 5.7% drop in March.
As of 6:50 GMT on Thursday EUR/GBP was gaining 0.40% to trade at 0.8959, after earlier touching an intraday high of 0.8961, or a level not seen since June 5th (0.9006). The minor pair has risen 0.47% so far during the current week, after it retreated 0.90% in the business week ended on June 5th.
In terms of economic calendar, Italy’s Istat will release its monthly report on industrial production at 8:00 GMT today. Output probably shrank at a monthly rate of 24% in April, according to market expectations, following a 28.4% slump in March. The latter has been the sharpest monthly drop in industrial activity since comparable series were initiated in 1990.
Bond Yield Spread
The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, equaled 56.9 basis points (0.569%) as of 6:15 GMT on Thursday, up from 55.2 basis points on June 10th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 0.8912
R1 – 0.8941
R2 – 0.8959
R3 – 0.8988
R4 – 0.9017
S1 – 0.8894
S2 – 0.8865
S3 – 0.8847
S4 – 0.8829