Rising Stock Markets Underpin Pound Sterling and Euro against the Dollar amidst News of Promising Covid-19 Treatment Progress

- Stocks up on Covid-19 treatment news
- Trend of GBP appreciation intact
- Trump sets out targets to lifting lockdown
- If risk sentiment improves further, expect USD weakness

Official White House Photo by D. Myles Cullen

- Spot GBP/EUR rate at time of writing: 1.1493
- Bank transfer rates (indicative): 1.1191-1.1271
- FX specialist rates (indicative): 1.1322-1.1390 >> More information

- Spot GBP/USD rate at time of writing: 1.2492
- Bank transfer rates (indicative): 1.2155-1.2242
- FX specialist rates (indicative): 1.2370-1.2380 >> More information

A two-week global stock market recovery remains in place ahead of the weekend, with U.S. indices following Asian and European markets higher and trading in the blue on Friday amidst news of promising progress in efforts to treat Covid-19 and the announcement of a roadmap to reopen the U.S. economy.

While equity markets are moving higher on news that Gilead Sciences have developed a promising Covid-19 treatment, foreign exchange markets are more or less behaving as we would expect them to in this environment with the 'risk on' currencies such as the New Zealand Dollar outperforming those peers classed as 'risk off' currencies such as the Dollar and Yen.

Looking at the Pound, the playbook suggests that when market sentiment improves Sterling should increase in value and we are seeing some outperformance against the likes of the Dollar and Yen. However, the UK currency looks to be increasingly stuck around familiar levels against other majors with the Pound-to-Euro exchange rate being a case in point as it is floating in a tight range just below 1.15.

Regardless of the lack of short-term volatility, we would certainly suggest that improvements in global risk sentiment will underpin Sterling against the Dollar and Euro and in turn expect the Australian and New Zealand Dollar's to outperform the majority of currencies.

Above: Sterling's relationship to broader risk sentiment is largely intact. The above shows GBP/EUR tends to trend with the S&P 500 index

A two-week trend of rising stock markets ultimately remains intact and coincides with a two-week trend of outperformance by the Pound, Australian Dollar and New Zealand Dollar against the U.S. Dollar, Yen and Franc.

What is behind the improved sentiment ahead of the weekend?

Market commentators are pointing the finger at news of progress towards a Covid-19 treatment, while a roadmap to an exit from lockdown in the U.S. announced overnight by President Donald Trump is also stoking optimism.

Covid-19 Treatement

Markets latched onto news that a Chicago hospital treating patients with severe Covid-19 symptoms using Gilead Sciences' antiviral medicine remdesivir is seeing rapid recoveries.

Ongoing clinical trials have seen nearly all patients discharged in less than a week, according to a report on medical news website STAT.

Remdesivir was one of the first medicines identified as having the potential to impact SARS-CoV-2, the novel coronavirus that causes Covid-19, in lab tests.

The STAT report says if the treatment is approved by the U.S. Food and Drug Administration it could become the first approved treatment against the disease.

The University of Chicago Medicine recruited 125 people with Covid-19 into Gilead’s two Phase 3 clinical trials and of those people, 113 had severe disease. All the patients have been treated with daily infusions of remdesivir.

In a presentation to her academic colleagues, a video of which was leaked to Stat, Kathleen Mullane, an infectious disease specialist who is leading the trials at the university hospital, said: "The best news is that most of our patients have already been discharged, which is great. We’ve only had two patients perish."

BREAKING: Gilead shares surge after-hours as Stat News reports that the company's Remdesivir trial for coronavirus patients is seeing rapid recoveries according to early data. pic.twitter.com/8ewBsMmnjh

— CNBC Now (@CNBCnow) April 16, 2020

"There are caveats (e.g. lack of control group and underlying patient characteristics) and no formal results yet. This is potentially good news for the overall market as an effective treatment may lend support to a faster easing of containment measures," says Philipp Lienhardt, Head of Equities Research at Julius Baer, the Swiss investment bank.

The Gilead Sciences treatment differs from a vaccine and is not intended to prevent people from catching Covid-19, rather it helps in the treatment of those who have succumbed to the virus.

Critically, it could slash the mortality rate of Covid-19, which would in turn allow governments to open up their locked down economies with some confidence.

"If this is indeed a cure or at least a drug that makes a significant change in the mortality rate, it will allow the global lockdown to be lifted much earlier than people had feared and before much permanent damage has been done to the global economy. That would be wonderful," says Marshall Gittler, Strategist at BD Swiss.

Meanwhile, there are at least 78 Covid-19 vaccines in development, four of which have reached human trials - two each from the United States and China - but by all accounts no vaccine will be ready by September while a global rollout could take even longer as it will take time to achieve scale.

Roadmap to Normality

Aiding the 'risk on' environment was President Donald Trump who on Thursday announced a roadmap to reopening the U.S. economy, something that will give investors further clarity on the outlook for the world's largest economy.

"My administration is issuing new federal guidelines that will allow governors to take a phased and deliberate approach to reopening their individual states, said Trump.

The guidelines will recommend that before moving to phase one of reopening, U.S. states should ensure there has been a downward trajectory in confirmed coronavirus cases over a 14-day period or a downward trajectory in positive tests as a percentage of total tests over the same period.

"The prospect of a gradual reopening of the U.S. economy in the coming weeks is what investors have been waiting for, in other words, some kind of a road map to figure out where the journey may be heading. However, the road to recovery looks set to be rather rough," says Marc-André Fongern, Head of FX Spot & Options at Fongern Global Forex. "The U.S. dollar's Achilles' heel is undoubtedly the Federal Reserve's aggressive monetary policy, so once the global economy starts to revive, demand for the currency can be expected to weaken significantly. But beware of premature optimism."