The number of deaths reported from COVID-19 yesterday now reached over one million worldwide.
In the UK we have seen the reintroduction of lockdown in some areas, and the UK government has also pointed to further challenges coming this Winter. UK retailers Tesco and Morrisons have now reimposed limits on purchases of certain goods to prevent a second wave of stockpiling by consumers like saw earlier in the year.
In positive news, Johnson & Johnson confirmed that they have now began a phase three trial of a COVID-19 vaccine. Most experts have said that they expect any vaccine to simply reduce the impact on the health of someone suffering with COVID, rather than destroying the virus. However, a vaccine remains of key importance for certain areas of the economy to recover, including hospitality and tourism. This means any steps forward could well provide an economic advantage for the territory who develops a vaccine first.
The recent decisions in the UK to battle COVID with more localised lock downs will no doubt slow down the pace of any economic recovery, and could well push the recession to a W shaped rather than V shaped, and end up being longer and deeper as a result, (it is reported that now 1 in 4 people across the UK is in some form of lockdown). The UK Furlough scheme comes to an end on the 31st October and the chancellor recently announced further measures to support the economy. He announced a £10bn package to support the economy over the winter, while also delaying the autumn budget. Unemployment in the UK has however started to climb, and currently sits at 4.1% officially, just 0.3% higher than the 45-year low back in February. In contrast to the size of economic activity which dropped by a quarter during lockdown, that Gross Domestic Product (GDP) is still over 10% below pre-COVID levels as reported in July, it suggests there may be a lag in unemployment figures.
The furlough scheme is supporting between 3 and 4 million jobs so the balance of economic health over fatality rates is a fine balance for the government and therefore the pound's value going forward.
Last month the Bank of England forecasted unemployment spiking to 7.5% by the end of this year which is the highest in seven years. (Unemployment levels reached 8.5% following the global recession in 2011).
Interestingly, one of the reasons unemployment may not have climbed so steeply, along with the quick response by the government that introduced the furlough scheme so fast, is the ballooning climb in public sector workers which climbed by 270,000 in Q2 of 2020.
As the post-COVID world is yet to be defined, what is clearly being forecast is a change in retail with many large retailers forecasting a drop in staff numbers as buyers move further online over the high-street. Next boss, Lord Wolfson, recently warned hundreds of thousands of jobs are at risk.
Car manufacturing has also been impacted with a Ford plant in South Wales closing after 40 years.
Other economic data from the UK recently pointed towards the service and manufacturing sector activity being in the growth phase after lockdowns, but still slower than before. Estimates suggest that from April to August the UK has borrowed £174bn, over three times the total borrowing in the last full financial year.
This morning we had the latest GDP figures confirm a plunge of 19.8% in Q2 vs Q1 of this year. GBPEUR levels this week have already changed by nearly 1.5 cents, or 1% as speculation around Brexit talks continue this week.
It was reported last night in the Guardian that Boris put forward a last-minute proposal to make a breakthrough in the deadlock with Europe. This was around one of the main sticking points, state aid. Both sides are tying to put some formal limits in place to maintain a fair economic playground, but as the pandemic threatens business of all sizes and industries both sides want some freedom to offer state aid to support jobs. Boris Johnson's proposal was to limit the amount of state aid available, which was widely considered as promising but not compressive enough to agree on.
Negotiations continue, but after four years of talks and current deadlines in place, any progress or backtracking has the potential to impact Sterling rates significantly and quickly so this remains a major topic to be up to date with if you have a currency requirement in the coming months.
Outside of Brexit, the next data to watch out for if you have exposure to the GBP is tomorrow morning with Manufacturing data confirmed, this is expected to stay steady.
Recently data for the euro area showed a contraction in the services sector, and a pickup in the manufacturing sector for the month of September. As we enter October this week the next monthly cycle of data will be released which could well confirm this.
Consumer confidence in the euro also showed a modest rise, despite the resurgence of the virus. Many look to Germany, widely considered the engine room of Europe for themes and narrative for how the wider territory is performing. This last week one of the largest banks across Europe, Deutsche Bank, confirmed that they plan to permanently close a fifth of its German branches as it predicts a permanent shift to online banking by users.
With now less than 35 days until the US population go to the polls, the US election is certainly expected to have the potential to impact several currencies moving forward. Last night’s first debate between President Donald Trump and Joe Biden was reported to be ‘one of the most chaotic White House debates in years.’ Currently an average of betting odds gives Mr Biden a 53.4% chance of winning the presidency, against 46.0% for Mr Trump, according to RealClearPolitics. As this however changes closer to the result day, expect these polls to have more power to change market values.
Economic data from the US, the worlds largest economy, has in the past also impacted several currencies including GBPEUR. On Friday we have what historically was one of the most important data releases, this being the US non-farm payroll data. Something to be aware of as we end the week.
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