After last week, when politics moved the markets dramatically, this week we should see a return of economic and health factors to the fore. The Bank of England Monetary Policy Committee will be pronouncing on interest rates on Thursday, while all eyes will be on UK Covid rates and the potential for a new lockdown.
UK politics continues to be dominated by the passage of the UK’s Internal Market Bill through parliament. Even Brexit-supporting Conservative MPs are opposing it, but the government insists that the Bill, which breaches the Brexit Withdrawal Agreement, is an insurance policy against future EU intransigence and its measures will probably never be used.
New Covid restrictions came in over the weekend, including quarantine restrictions for those arriving from Portugal and the “rule of 6”, which cuts the number of people who can meet in the UK – indoors or outdoors – from 30 to 6. The number of infections continues to rise, reaching around 3,000 per day, but fatal cases are remaining at around 10 per day on average.
US pharmaceuticals company Pfizer says it should have a coronavirus vaccine “by the end of the year”, which has encouraged stock markets this morning.
In world news, Yoshihide Suga is likely to be the new Prime Minister of Japan, succeeding Shinzo Abe and – most analysts believe – continuing Abe’s policies.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Trader on 020 7898 0500 to get started.
GBP: Will BoE meeting impact the pound?
The pound started the week on the rise, following near 4% falls last week as the eighth round of Brexit negotiations came to a close with a deal apparently further away than ever.
The introduction of the ‘Internal Market Bill’ sparked controversy and the EU has given the UK until the end of the month to scrap the bill before taking legal action. However, the government has insisted that it will proceed. The next official round of talks will begin on 28 September.
On a more positive note, the UK secured a free trade agreement with Japan at the end of last week, with International Trade Secretary Liz Truss saying that it will bring “new wins” for UK businesses.
UK GDP increased by 6.6% month-on-month, according to data released at the end of last week. This week, average earnings and inflation rate figures will be released. The Bank of England will also announce their latest decision on interest rates.
EUR: Inflation rate data due this week
The euro was strong against both the pound and the dollar at the end of last week, after the President of the European Central Bank, Christine Lagarde downplayed concerns over the rising value of the currency.
Despite this, Chief Economist Philip Lane said on Friday that an overvalued euro “dampens the inflation outlook.”
There will be a series of data releases for the Euro Area this week, including industrial production figures today and inflation rate data on Thursday.
USD: Federal Reserve monetary policy meeting on Wednesday
The dollar was in a weak position against the euro towards the end of last week but was stronger against the pound.
Inflation data for the US was released on Friday. The figures showed that the cost of goods and services rose sharply in August for the third month in a row, but the increase was mostly a recovery after a decline at the start of the coronavirus pandemic. Overall inflation is still fairly low.
Inflation is likely to be a topic raised by the Federal Reserve this week, as they announce their latest decision on interest rates this Wednesday. Interest rates are expected to be kept on hold. However, the markets will be looking for any comments following the recent announcement that they will take a relaxed approach to inflation and keep interest rates low.