. The pound continues to trade within almost the same trading ranges against major currency pairs, as before the deal was confirmed.
Despite cable (GBPUSD) hitting the highest level in over 30-months, which can mostly be attributed to USD weakness, the pound has mostly failed to gain in value so far which is perhaps due to the new lockdown measures owing to the increasing number of cases of Covid-19. The UK is under similar lockdown measures to the first lockdown which took place in Spring last year, and without a definitive end date the pound has weakened against the likes of the euro and other major currency pairs despite the positive news of a Brexit deal being agreed at the final stages. The last lockdown hit the UK harder than most other developed economies due to the UK’s focus on the services industry. The recovery has also been slower comparatively speaking from the first lockdown so personally I think these concerns will be in the minds of sterling bulls, which is perhaps why the currency hasn’t strengthened despite the deal being agreed and implemented.
A strategist at Nomura Bank (a Japanese Investment bank) by the name of Jordan Rochester has predicted this week that downside for the pound is expected to be ‘limited’ as business is expected to continue as normal for the UK moving forward.
Another topic that could impact GBP exchange rates is the potential for the Bank of England to cut the interest rate further, to assist with the negative impact of the economic downturn expected due to the 3rd national lockdown measures announced by Prime Minister Boris Johnson earlier this week. The base rate currently sits at 0.1% which is a historic low, and although negative rates have so far been ruled out by market analysts a move lower to 0% could limit the pound’s upside.
There are no key economic updates for the UK throughout the rest of the week, so sentiment is likely to remain the key driver of sterling’s value so please make us aware if you wish to be notified of an exchange rate spike.
The US Dollar gained in value yesterday as preliminary results from the pivotal US Senate contests are pointing towards another win for the Democrat party. This Senate contest has had a big build up and is being followed very closely and if the Democrats claim another win, it will ensure they have control of the Senate. This will enable them to action their policies as they will hold a majority thanks to incoming Vice President Kamala Harris giving the Democrats a voting majority.
Financial Analysts are generally assuming that a Democrat controlled Senate would be a positive for global economic growth and therefore, riskier assets. The same cannot be said for future US dollar strength though as increased financial stimulus package expectations are likely to weaken the US dollar should they materialise. There is also an expectation of fewer trade wars which would again benefit global growth.
In the meantime though, the US dollar has strengthened off the back of the likelihood of a Democrat victory for Raphael Warnock and Jon Ossoff, the two Senate candidates based in Georgia. A victory in Georgia for both will make way for Chuck Schumer to set the agenda within the Senate as opposed to Republican Mitch McConnell. McConnell has been in the news a lot recently due to the ongoing saga surrounding the financial stimulus package for US citizens.
A busy end to the week is expected for USD exchange rates not only due to the importance of the Senate race, but also due to the volume of economic data releases.
Later today Initial and Continuing Jobless Claims will be released which will cover the jobs market in December, followed by an update on the US Services sector which could also influence the dollar’s value. Tomorrow lunchtime will also see the release of Non-Farm Payrolls which is a key monthly update on the state of US jobs health outside of the agricultural sector. This is keenly watch and can result in market movement especially if the actual figure released deviates from the prediction of 100k new jobs created, which would be a drop from the previous month (Nov) which posted 245k new jobs.
There are some shocking scenes coming out from Washington DC last night as a group of violent protestors broke into the Capitol building attempting to overthrow the November Presidential election outcome. At least 52 people have been arrested with 4 fatalities recorded, and the US capital is now under curfew measures. Many political commentators are blaming outgoing US President Donald Trump on fanning the flames of his supporters by failing to concede the election result. Police in riot gear will continue to secure the area now so lawmakers can continue to certify Joe Bidens win but a peaceful handover of power does not look likely. Several of the largest social media platforms have decided to deplatform the President in the wake of his inflammatory comments, after he continued to claim foul play during the election even when asking the rioters to go home yesterday evening. The USD is so far relatively unchanged, and a wave of top officials have quit the White House team in the wake of the violence.
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