Sterling rose against the euo yesterday but reasons behind the boost have not been overly clear as of yet due to no significant announcements or data releases which provided any strength for sterling.
Surprisingly, the last big event was that of PM Boris Johnson who stated that the UK would have a 10pm curfew implemented due to the rising COVID-19 levels. It comes just before the UK experienced a rise in new admissions by 25% to nearly 6200 yesterday which puts it in line with the peak of the pandemic back in March. Despite this and the uncertainty this brings, the UK has been performing well. At least against the euro that is. The pound to US dollar exchange rate tumbled by almost 2% between the peak on Tuesday’s trading to the trough yesterday which has every possibility of moving back into the 1.26 trading range.
Continuing on the topic of uncertainty the UK is experiencing at late, today will see Finance chancellor Rishi Sunak unveil plans into what will ensue following the closure of the Job Retention scheme at the end of October. Calls have been suggested to take the approach of France and Germany which have similar programs which involve short-term work with the government reimbursing people with a proportion of the lost hours they would have normally worked. This had been a tried and tested approach which has the capacity, in France’s case, to continue for several years suggesting its effectiveness as a long-term solution.
Recent developments regarding the latest on the Brexit negotiations have been ongoing this week with the latest coming from cabinet minister Michael Gove when referring to trucks passing through Kent on their border crossings. Following the transition period at the end of this year, truck drivers will now need a permit to enter France which, as only 25% of businesses are set up and ready for next year, has been predicted that 7000 trucks would be stuck waiting for 2 days to clear the border and clog up the roads on both sides. With a clear need for further negotiation in this regard, businesses will still find it impossible to adapt to the constantly changing political and economic landscape which will create further delays in getting sufficient measures in place for a sustainable relationship with the EU.
In totality, problems stem deeper than this as today marks the start of the final 3 weeks in the run up to the informal date to get a trade deal in place before leaving where a no-deal becomes a likely prospect. Following the latest developments from Brexit over the past 4 years, there tends to be concessions in negotiations nearer to the deadlines and considering there is no extension possibility, there could well be considerable volatility for GBP/EUR rates within the coming few weeks depending on the outcome. For the latest update on your trading positions for buying or selling euros, you may wish to contact your account manager at Foreign Currency Direct.
In more positive news for the Eurozone, yesterday’s German Markit manufacturing data came out more positive than expected with the recording of 56 surpassing the predicted and previous 52. The bloc in general also saw a rise in the same category with its figures rising from a previous 51.7 to 53.7. Albeit small rises, any signs that economic recovery are taken place should be an encouraging prospect. It does seem though, however, that economic data have a somewhat subdued effect on currency market volatility so it will likely be any changes to the current path of Brexit which shape the way for currency strength to come.
The USD has not only made some solid inroads against the pound but also managed to gain against its European counterpart as well. US dollar to euro mid-market exchange rates for the past few weeks had been limited around the 0.84 trading range. However, they are now on the rise with yesterday’s trading level peak of 0.859, which is near a 1.5 percent improvement. Interbank has since dropped off slightly but is a sign that the USD, which had previously been struggling due to it being the largest contributor to the COVID-19 cases and deaths globally, is now back with newfound resilience.
Questions had been asked in recent times whether the USD could still be considered a safe-haven currency after its recent poor track record against many major currency counterparts recently such as when GBP/USD rates hit 1.34, but it must not be mistaken, there is still a very long way before the events of the pandemic stop making headline news.
Besides the Coronavirus, the upcoming US election will take centre-stage in the run up to 3rd November and further insight into the voting differences between Biden and Trump will need to be announced before further currency movement takes place.
Some of this currency movement for the US dollar recently can be attributed to the Federal Reserve Chairman Jerome Powell who has been providing an overview into the economic health and monetary policy stances moving forward. Although the economic outlook is bleak at the moment with high unemployment levels continued to be a significant problem, it seems that clarity and projected ambition as to what the government is trying to accomplish to mitigate further economic loss appears to have worked in the US dollar’s favour and has reduced some of the uncertainty felt with the US.
Friday will finish events off with the US durable goods orders which may be interesting considering they are predicted to fall from last month’s 11.5% to just 1.5%. This could induce weakness for the US dollar and could dampen the growth that the currency has seen from the start of this week.
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