Pound/dollar was somewhat shocked – like the British public and the rest of the world – by Prime Minister Boris Johnson's admission to intensive care amid complications of COVID-19. Cases and deaths of the disease continue mounting in the UK, US, and elsewhere, and lockdowns are likely to continue weighing on the economies.
This week in GBP/USD: Leadership vacuum amid the peak of the crisis
Being in intensive care is never good news – the report that PM Johnson's condition deteriorated weighed on the pound, and so did the initial release of his hospitalization. Calming words from Downing Street – such as that he does not need ventilation – failed to unnerve traders.
Johnson has been elected in a landslide majority only in December and had considerable political clout, and his absence in a national crisis is worrying. Foreign Secretary Dominic Raab is deputizing for him and running the day to day operations, but it is unclear how far he can go with big decisions.
Raab, a former lawyer, and a hard-Brexiteer previously competed for the job and is experienced in government. However, the UK's management of the crisis has already come under criticism, first for letting the virus run and later for the lack of tests. Having a less-experienced and less popular interim leader in place is yet another factor weighing on confidence.
The death toll from coronavirus continues rising and souring the mood, especially as the University of Washington forecast that the UK may suffer 66,000 mortalities.
In the US, the curve also refuses to flatten significantly, with the states of New York and New Jersey suffering rapid spreads. Other parts of the country are not as hard hit for now, and President Donald Trump is considering opening up some parts of the economy.
Trump is also warming up to add stimulus to the economy, mulled by House Speaker Nancy Pelosi. Another $1 trillion in expenditure to mitigate the economic effects of coronavirus is under consideration. The reports pushed stocks higher at some point and weighed on the dollar.
US jobless claims disappointed once again with over 6 million – yet markets jumped as the Federal Reserve announced a new scheme at the exact same time. The Fed laid out several new schemes that total $2.3 in loans. The new bazooka from Chairman Jerome Powell and his colleagues sent stocks up and the dollar down.
UK events: Johnson's health, lockdown extension, economic measures
At the time of writing, the PM's condition remains stable, but he has not left intensive care. Any update on Johnson may move markets and overwhelm other events. The longer he stays in the hospital, the more significant the pressure on the pound.
The UK is set to extend its lockdown for several weeks – at least until a peak in cases can be seen in the rearview mirror. Foreign Secretary Dominic Raab will likely have to take that decision, based on medical experts' advice and alongside his peers in the cabinet. Former health minister Jeremy Hunt suggested that significant restrictions may be extended for at least a month.
The shuttering is taking a substantial toll on the economy, and the public is playing along. However, criticism may increase if testing for COVID-19 cases remains limited. Raab may find himself in a tricky situation and without the necessary political capital to deal with an escalation of the crisis.
See Coronavirus Exit Strategy: Three critical factors to watch and how they impact currencies
One option that has been aired is a government of national unity. Keir Starmer, a moderate, has been elected leader and may join forces with the Conservatives amid the deterioration and as long as the PM remains away from Downing Street. Such a move, which is in its infancy, may boost the pound.
Chancellor of the Exchequer Rishi Sunak – who would take over if Raab becomes sick – may introduce additional measures to help struggling businesses and workers, and the unemployed if lockdowns are extended. That would also be positive for the pound.
The only noteworthy economic release is the British Retail Consortium's Retail Sales figure for March. It will likely reflect a leap as Brits stockpiled ahead of the lockdown.
Here is the list of UK events from the FXStreet calendar:
UK macro economic events April 13 17 2020
US events: Potential restriction easing and consumer data
Has the US coronavirus crisis peaked or not? That question will likely be on the top of the agenda and may see a struggle between health officials and the White House. Trump would like to return to normal as soon as possible, to boost the economy and his reelection chances.
However, Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIH), said it is time to intensify efforts, not loosen them. In any case, the decision mostly rests with state governors. The longer the shutdowns last, the worse for the economy and stocks – and better for the safe-haven dollar.
Governors will likely make decisions according to the health situation in their states so that the daily updates may have the most substantial impact on currencies. The epicenter has been New York, but with some signs of peaking, the focus may move to other places in America.
Retail sales for March stand out, and they may show a discrepancy between the headline figure and core numbers. Overall, shopping may have risen – or at least not collapsed – as Americans were stocking up on supplies. However, excluding volatile items, expenditure has likely dropped amid massive layoffs. It is also essential to note that the figures have unlikely captured the full extent of the economic damage in March, and the whole picture will be available only with revisions due in the following report.
The Federal Reserve's Beige Book – usually a "gray" document – will shed some light on what central bankers here from businesses and the picture will likely be gloomy. The publication precedes the next Fed decision.
Weekly jobless claims remain a wildcard, with figures in the millions, but likely without a clear consensus. This publication, for the week ending on April 10, is the first one where the four-week rolling average will have already captured four consecutive reports in the millions. The smoothed-out indicator will likely provide a baseline for the employment situation.