Latest data from the National Statistics estimates that 336,000 people in England had Covid in the first week of October, up from the 224,000 the week before. Test numbers are increasing and as a result so are positive readings, but equally a number of NHS trusts are now reporting near capacity in ICU beds. The central government as a result have now put over 50% of the UK into some sort of lockdown restrictions and more is expected to follow in the near future.

‘Circuit breakers’ are coming in across Wales and it would seem others may well follow. Political disagreement has recently emerged after documents showed that the leading scientific experts advised a two to three week national lockdown four weeks ago.

This increase in cases is not solely in the UK but around the world. New confirmed infections also rose rapidly in Switzerland, Germany, Belgium, the Czech Republic and the Netherlands. France placed nine major cities under a 9pm curfew as the number of new cases in the country in one day exceeded 30,000 for the first time last week, with more cities joining that list already.

Balancing job losses and therefore economic health against death rates remains a tricky act for governments not just in the UK but across the world. This balance is one which could well impact sterling’s value going forward with an economy more heavily dependant on spending and ‘social service sector.’ In real terms if there are further lockdowns on both sides of the channel for example, the UK economy could well contract at a faster pace than Europe due to that larger dependency weakening the GBPEUR rate like seen back in March/April.

Brexit Latest

Brexit Latest

As we again enter the last few days of the current timelines to get a Brexit deal, more political positing seems to be taking place. Boris Johnson said that last week’s European Council meeting “appeared to rule out a Canada-style deal” and that the UK should prepare for “arrangements more like Australia’s”. (Australia currently has no free trade deal with the EU.)

Michael Barnier held another phone call with David Frost which in it he is reported to have said ‘we should be making the most out of the little time left’ as reported in the Independent yesterday. An ally of Merkel suggested the possibility of a last-minute Brexit deal remains less than 50-50. In either case the decisions made about how the UK trades with its largest trading partner could well have a long standing impact on the value of sterling so this topic, however long it continues, has all the ingredients to have a big impact on the pounds value.

UK Economic Data That Could Impact Sterling Rates

UK data continues to be released however does seem to be overshadowed in the eyes of sterling value by Brexit developments with an ever-changing probability of an agreement and the speed of the reaction by government around the pandemic.

The UK unemployment rate rose from 4.1% to 4.5% from July to August. Forecasters expect further rises as government job-support schemes unwind with the Bank of England (BoE) earlier this year suggesting it could top over 10%. Government spending continues to climb to stimulate growth and support jobs. What was interesting recently was that credit rating agency Moody’s downgraded the UK’s credit rating noting concerns about long-term damage to the economy and a “weakening in the UK’s institutions and governance”.

The BoE has asked banks whether they are ready for zero or negative interest rates with BoE governor stating that the UK faces ‘an unprecedented level of economic uncertainty.’ The British economy reported a contraction of 20% in the three months to June put down to Covid impacts, this was the biggest fall of any large, advanced economy over that period.

Growth forecasts, unemployment levels and therefore interest rate decisions remain key drivers for the value of the pound going forward.  Later today we have the release of the latest UK Consumer Price Index and Retail figures which could give a clearer idea of the health of the UK economy. The governor of the BoE, Andrew Bailey also has a speech scheduled for Thursday which could well impact sterling’s value as we head towards the end of the week.

Recent News for Europe Shows Mixed Results.

Confidence of how Europe is dealing with Covid second wave is having a driving impact on the single currencies value, after cases climbed last week the euro weakened. Economically Industrial production slowed in Europe, growing 0.7% in August from July. Consumer prices in September were down 0.3% from a year ago and inflation is also falling, all suggesting the recovery may be losing momentum. The European Central Bank has a number of speeches this week along with the latest Consumer Confidence data released on Thursday.

US Continues Printing Money to Support the Economy

US Continues Printing Money to Support the Economy

With now less than 12 days until the US population go to the polls, the US election is certainly now starting to impact the Greenbacks value. An average of polls compiled by RealClearPolitics gave Joe Biden a 9.0 percentage point lead over President Donald Trump, marginally down from the week before. Economist US election model gives Mr Biden a 91% chance of winning the presidency whereby betting markets forecast Mr Biden’s probability of winning as 62%.  Many did not expect President Trump to get to the Whitehouse so most do not second guess these forecasts.

As the date gets closer risk appetite could well be impacted, resulting in large swings in currency values globally due to the USD status and impact around the world.

Outside of Politics in the US economic data remains changeable also. US retail sales rose in September to 5.4% higher than the same period in 2019. This driven by strong sales in home improvement and sporting goods stores. Spending online in the US was 23% higher than that same period a year earlier too. Supporting the long-expected change in buyers appetites as consumers avoided high street retail. US industrial production fell 0.6% from August to September to levels 7.3% below that of a year earlier again showing the changing landscape of business in the US.

There is also building pressure on the current budget in the US and stimulus programs in place, however no agreement is in place as of yet. The process of printing money in the US remains unstoppable, the long-term impacts are yet to be seen but to put it into prospect 22% of all the US dollars in circulation now were printed this year!

Despite forecasting record rises in government debt this year, the IMF warned of the “risk of prematurely withdrawing fiscal support” and called for governments to “maintain fiscal support until the recovery is on a sound footing” suggesting this could well continue. They also forecasted recently that Covid has now blown a $28 trillion hole in the global economy.

The next economic data to watch out for in the US economy is initial jobless data which is released tomorrow.

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