In the political sphere, Brexit developments continue to produce little changes as to what has been discussed recently in regards to the problems associated with UK fisheries and its consequences with neighbouring France.
With UK PM Boris Johnson changing the goal posts for the informal Brexit deadline to mid-November, it can be expected that this lingering uncertainty may continue to root Sterling around its rangebound figures until further announcements are made. At time of writing we are seeing GBP/EUR exchange rates at 1.105 having eased off slightly from the back end of last week. In comparison, GBP/USD resides more comfortably at 1.305 which is still down a cent from last week.
Considering that there has been just a few cents movement for the respective currency pairings after the past few months, the lacking volatility is waiting for more significant releases to deter away from the current ebb and flow of the currency markets. In the latest from the ongoing Brexit saga, economists at MUFG bank had stated that “the decision of Michel Barnier to remain in negotiations in London through tomorrow was viewed as a positive sign by the UK government yet it failed to register in the FX markets”. They continued to further suggest that despite the hype that is being generated surrounding how fantastic a trade deal would be for the pound and could see exchange rates at 1.15 according to the likes of BNP Baribas, the realistic boost Sterling could experience is far more conservative that some experts predict.
With that in mind the outlook for the UK remains questionable especially when taking into account the economic ramifications that could develop from the growing COVID-19 cases. With the highest daily death count since May and new admissions surpassing 20k daily, the social impacts are starting to take their toll, yet in a more segregated way. Northern regions like Nottingham, Birmingham and Manchester, which are experiencing spikes in coronavirus, are raising concerns that the “north could be left behind”. Henceforth, 50 MPs have come forward demanding a roadmap to the governments plans moving forwards into next year so as to ensure that hard-hit regions will still be able to function normally without too many adverse effects to their localised economies.
The single currency, just like its British counterpart, has not been too excitable recently either when considering the multitude of events that are occurring simultaneously. The most traded currency pairing globally is the EUR/USD and could be viewed as a hallmark for the currency market at present. Mid-market levels are floating around the lower end of the 1.18’s which is wedging in the middle of its trading range over the past few months which have mainly been between 1.17 and 1.19. This epitomises the lack of currency movement as the markets could well be waiting on more influential or drastic changes before any significant fluctuations take place.
Italy has been struggling following its recent lockdown restrictions the government has implemented. Bars, restaurants, gyms and cinemas now have a 6pm curfew as of Friday last week which has caused riots to break out and the police called to intervene. France is also experiencing its own bout of problems with its highest case numbers since April and has caused the government to implement similar restrictions to curb the pandemic.
Economically this will have a long-lasting impact on the value of the euro which will continue to fight an uphill battle to keep businesses open. However, considering that the World Bank has predicted that global GDP has shrunk more than 5.2% for 2020, no country has come off financially unscathed and thus the currency markets remains stagnant until it seems that some countries or currencies are beginning to pick up the pieces faster than others.
From an economic data standpoint, it may be rather quiet this week with just the European Central Bank (ECB) interest rate decision on Friday which has not given any indication that levels will move away from 0%. With no change expected, it is unlikely to harbour any movement for the Euro but is always an interesting release to watch when accompanied by ECB chief Christine Lagarde as her market sentiment and outlook moving forwards could influence investor confidence within the bloc.
Unsurprisingly, the centre point of the US dollar’s value now rests on the run up and result o the Presidential election set to be announced on the 3rd November which is now just 6 days away. As per usual, the variety of claims and suggestions as to who will remain or move into power are flying around which creates very uncertain trading conditions for the most globally traded currency. Stipulation as to what effect the result has on the US dollar’s strength has been mixed to say the least. As mentioned in some of our more recent market reports this week, the financial, business-minded Trump has a tried and tested approach to the economy which may be what the US needs considering the effects the pandemic has had on its economy and still has the worst cases and deaths of any country.
In contrast, the more diplomatic Biden, who appears to have a slim single digit lead over the current president, has not been in power previously and thus doubt as to how he could perform in the current economic climate could be questioned. Irrespectively, previous US elections, regardless of outcome, have evolved claims of rigged elections and miscounting votes and means that USD trading could well be in a very volatile period with 2021 just around the corner.
In addition to this, as we edge nearer to the end of the month, businesses who have surplus US dollars tend to sell off their positions in the final few days which has the ability to have a short-term effect on the weight of the currency and could be another element which evokes some currency movement.
To finish off, Tuesday’s US durable good orders has inspired small hopes of confidence with figures improving from September’s 0.4% to October’s 1.9%. Thursday is certainly set for a more eventful day as it brings with it the Gross Domestic Product (GDP) for Q3. Considering that GDP has collapsed by almost a third in the US at a 31.4% contraction, it leaves much to be desired as to where Autumn will fare. Predictions stand marginally better at -31% but even if they come in around this point it is still a very dire release and could weaken the USD against some of its major counterparts.
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