Currency Note

GBP faces new lockdown risk

By Christopher Nye September 21st, 2020

The UK as a whole could be heading for more lockdown measures as new Covid cases exceeded 4,000 per day for the first time since May – albeit with more testing now.

Despite this, fatality rates remain low. A two-week “circuit breaker” lockdown, perhaps over the October half term, has been suggested.

In the US, the death of Supreme Court judge, Ruth Bader Ginsburg, sets up a battle as to whether the next choice will be decided before or after the election, not just six weeks away.

Also from the US, Joe Biden has said that the US under his presidency would not sign a trade deal with the UK if the UK Internal Markets Bill goes against long-standing Northern Ireland peace deal the Good Friday Agreement.

There are no Brexit talks this week – they restart next week – but movements in sterling could come from a worsening Covid situation making lockdown more probable, from two speeches by Bank of England governor Andrew Bailey, and from PMI data out on Wednesday.

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GBP: Further detail on negative rates planning?

Sterling starts the week almost 1% higher against both EUR and USD than last Monday, after the EU Commission president made positive comments on hopes for a Brexit trade deal.

With no UK-EU trade talks this week, the focus will switch to monetary policy, where BoE governor Andrew Bailey may spell out plans regarding a potential move to negative interest rates in two speeches this week (Tuesday morning and Thursday afternoon), after saying last week that preparations were under way.

Sandwiched between these will be Markit PMI data on Wednesday morning, gauging how British industry is looking in the immediate future.

The other major market mover will be a potential new lockdown if Covid cases continue to rise.

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EUR: Italy’s potentially destabilising election

The euro weakened sightly against GBP last week. Against USD, despite a dip midweek the single currency ended the week essentially unchanged.

The Eurozone and its major economies also have PMI releases on Wednesday, along with GfK consumer confidence.

Covid could also be a strong influence on EUR this week – can European countries keep a lid on cases?

Italy – which remains a success story in fighting the second wave – has been going to the polls in regional elections yesterday and today. The main question is whether the ruling centre-left coalition will lose out to right-wing parties – a destabilising factor with a potentially negative impact on the Euro.

USD: Presidential race warms up

The dollar had a flat sort of week against EUR while losing out slightly to GBP. This week political and monetary considerations should dominate.

America’s most divisive and charged election in decades was ramped up even further by the sad death of Supreme Court Judge Ginsburg.

With the polls still suggesting a Biden win, a resurgence in support for Trump could see market movements.

It’s a relatively quiet week on the economic front, but various members of the Federal Reserve committee will be talking, including Fed Chair Jerome Powell tomorrow.

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