With uncertainty rife across the UK from the pandemic, the Brexit political stimulus has created a difficult economic landscape for sterling exchange rates. The GBP/EUR interbank rates have fluttered repeatedly above and below the 1.10 region as the euro battles to keep its UK counterpart under the resistance level. The GBP/USD interbank rate has fared significantly better with the pairing surging 1 percent higher over the course of yesterday’s trading.
Despite the unprecedented times we are experiencing, no single country has been uninfluenced by the pandemic yet but even so the UK is seeing more uncomfortable figures than most. Having helped push global COVID-19 deaths above the one million marker in a sad day for worldwide events, the UK is continuing to see rising daily case numbers with figures breaching 7000 in a confirmed second wave of the virus. Predictions have been suggested that if left unchecked, we could be seeing 50k cases a day by mid-October and could give the government reason to implement the 2-week “circuit breaker” national lockdown and further reduce economic output, at a detriment to the pound.
For GBP/USD levels, much of this currency volatility was not based off of sterling strength but weakness for the US dollar. In the early hours of Wednesday morning UK time, the US presidential debate took place between Trump and Biden in what has been described as one of the messiest starts to the campaign trail in US history. Statements to one another, although expected, became very personal and vulgar slurs and became more about discrediting each other than it did about the best course of action for the world’s largest economy moving forwaards. As events heated up, their effects on the currency market became known. The uncertainty that this generated caused weakness for the most commonly traded currency and even saw the EUR/USD rates hit peaks of 1.175 yesterday.
The ensuing result of the debate was a slim lead in favour of Biden but markets have predicted that this will have had little effect on a change in voting patterns and debates nearer to the 3rd November decision will carry more weight. All eyes now turn to the 10% of US citizens who remain undecided as to which presidential candidate should be placed in office. This is another element which increases uncertainty, and thus a driver for USD weakness, as the decision is seemingly a very close race in some regards with reports suggesting just a single figure lead by frontrunner Biden.
The eurozone is in all sorts of troubles at the moment with its mass increase in COVID-19 cases. Just like in the UK, the continent has seen countries such as France experience daily case numbers surpass the 10k threshold. It is even more worrying considering that health officials are predicting that the winter months, which have other viruses such as the common flu, will put even further pressure on the health services already under heavy duress from the outbreak.
The single currency didn’t receive any support from economic data out this week so far either as the German Harmonized consumer price index, which gives indications into economic price stability, came in lower than the expected -0.1% at -0.4% on Tuesday. Yesterday saw more of the same as German retail sales figures slipped from a previous 5%, past the estimated 4.2%, down to a depressing 3.7%. As Germany is the economic powerhouse of the bloc, any negative data out for the EU member state can have negative repercussions for the euro which could be a sign of further weakness to come.
For the remainder of the week, EU leaders’ will meet at a summit to discuss the Greek financial crisis. As a nation that had already been struggling before coronavirus, the country will be in desperate need of some of the €750bn economic recovery package that the EU has clumped together. Following this release, the week will be finished off with the bloc’s version of the consumer price index and could well follow Germany’s path with current predictions aimed around 0.5%. Should predictions fall away from expectation, the pound could stay above its 1.10 level, at the time of writing, and see EUR/USD fall back into the 1.16 territory that was seen momentarily yesterday.
With these uncertain times ahead, please contact your account manager here at Foreign Currency Direct for the latest review into your trading positions or call in on 0044 1494 725 353.
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