Euro and pound collapsed yesterday amid news of another lockdown in the UK because of COVID-19.
According to the statements given by Boris Johnson, the new strain of coronavirus, which was discovered late last year in England, is spreading in the country at an alarming rate. There were even reports that say the Department of Health may not be able to cope with the growing infection rates. As a result, Johnson decided to impose another lockdown, and it would be effective today. Schools are switching to remote work, and all residents are allowed to leave the house only for a walk, to see a doctor or to a grocery store. Meanwhile, people with severe chronic diseases are recommended to be completely isolated.
The duration of the lockdown is uncertain yet, but at the very least, it will remain in effect until mid-February. This is because by that time, many UK citizens should have been vaccinated already, since the government is targeting about 2 million people every week.
At the moment, COVID-19 incidence in Britain is at 58,784, and it is after the detection of the new strain that more than 50 thousand cases were recorded every day.
As for the United States, a study conducted by Duke, Harvard and Johns Hopkins University suggests that the country may record higher death rates in the next 10 years, as the impact of the coronavirus is sure to have a long-term effect on public health. Mortality rate is projected to rise by 3%, while life expectancy will fall by 0.5% over the next 15 years. The report indicates that African-Americans and women will be hit hard.
Accordingly, this points to a very serious recession in the long term, even amid the emergence of COVID-19 vaccines and assistance from the government. A sharp downturn is closely linked to health and mortality, with higher unemployment rates further worsening the rate.
Meanwhile in Europe, the report published by the IHS Markit said that working conditions in the bloc improved in December 2020, mainly due to a surge in orders and strong production growth. Manufacturing PMI jumped from 53.8 points to 55.2 points, almost the same as the expected value of economists.
In that regard, it can be said that the coronavirus now has a lesser impact on the economy, as compared in the 2nd quarter, during the first wave of COVID-19.
Germany was again the growth leader, followed by Italy, and then France and Spain.
In particular, the Manufacturing PMI in Germany was at 58.3, while the PMI of France was at 51.1 points. Italy, meanwhile, reached 52.8 points.
In another note, Loretta Mester, president of the Cleveland Fed, said yesterday that the US economy needs more support from monetary and fiscal policy in 2021, because most likely, the economic slowdown warned by Jerome Powell will occur. Only by mid-2021 will the pace accelerate again due to expectations for COVID-19 vaccines. In any case, Mester noted that the slowdown will be in line with expectations, therefore, monetary policy may not change.
"A more optimistic end to 2020 will not entail a change in our monetary policy, as the economy will still fall short of employment and inflation targets," she said.
With regards to the EUR / USD pair, the bulls need a repeated breakout from 1.2275 in order to regain solid control of the market, as only by that will the euro be able to reach 1.2310, 1.2360 and the 24th figure. But if the quote moves below 1.2275, the euro will collapse to 1.2210, and then to 1.2170.
GBP: The latest report on manufacturing activity in the UK, although indicated a very sharp improvement in December, did not raise demand for the pound in the markets.
Manufacturing PMI rose from 55.6 to 57.5 points, which is much better than the expected value of economists. The influx of new orders led to an increase in activity and production. However, the risk of supply chain disruption due to port delays and other logistical problems could significantly reduce the index 'growth rate in January this year.
The report on mortgage loans did not affect the market as well, even though they increased from 98,338 to 104,969 in November, and were much better than the forecasts of economists.
Instead, the GBP/USD pair remains standing, and only after the bears manage to bring the quote below 1.3560 will the pound drop to 1.3480 and 1.3375. But if the bulls manage to break above 1.3630, GBP/USD will move to the 370th figure.