Clock

16/10 – Sterling gets that sinking feeling

GBP: Sterling starting to wake up

EUR: Spain and Netherlands increase virus measures

USD: Stimulus hopes remain distant

Sterling

After enjoying a little over 12hrs above the 1.30 mark, GBPUSD is back below the 1.29 level as we open this morning. Exuberance of a Brexit negotiating extension has been tempered by the reality that as soon as this morning, Prime Minister Johnson could signal to his negotiating team that enough is enough, there is little hope for an agreement on the matters outstanding and resign the UK to leaving the EU without a trade deal.

Johnson could also decide to keep going and push negotiations ever closer to their natural conclusion which seems to be around the middle of November.

It is not an over exaggeration to say that the future of the pound rests on that decision and the subsequent negotiated outcome. Needless to say, sterling could be a bouncy ball for a few day’s trade especially if enough time is left for rumours to spread and the Sunday papers splash a sensationalist headline or two.

I know my job is to make forecasts of where and how sterling and other currencies will trade but it is not out of the realm of possibility that GBP is not 4 cents higher or lower than its current price in a matter of hours. For my money, I think negotiations are extended – are we really going to leave the EU without a deal, with negotiating time still on the clock over fishing rights? – but the risk remains.

Similarly, growing anger over the government’s plans to increase lockdown procedures, denying some within the services sector an income, without an appropriate level of financial support will also weigh on sterling through the day.

Euro

All eyes were on Brussels yesterday and will remain so today. As much as Brexit is a negative for the pound, a no-deal outcome is no walk in the park for the single currency and we would advise caution with both currencies in the coming sessions.

US Dollar

The headlines out of the US over the lengths that President Trump will go to in order to be able to say that stimulus cheques will hit Americans’ bank accounts in time for the election are becoming increasingly desperate.

Treasury Secretary Mnuchin told House Speaker Pelosi, the most powerful Democrat in Washington, that Trump would lobby reluctant Republican Senators himself in a bid to get a deal over the line.

It would be cruelly ironic if a President whose book “The Art of the Deal” was referenced so widely during his original run to the White House was kicked out of the Oval Office for failing to get a deal on stimulus.

The lack of progress and the market’s realisation that the noise from politicians is really only to make sure there is someone to blame when the talks go south strengthened the USD across the board yesterday, as did the poor jobless claims numbers; investors are worried and they will continue to buy the greenback if those fears continue.

We expect a fresh round of polling this morning to show that Biden’s lead over Trump with a little over a fortnight to go until election day sits at around 10 percent nationally.

Elsewhere

In a lesson to politicians everywhere, we expect Jacinda Ardern to be returned as Prime Minister of New Zealand in the country’s elections this weekend following her government’s handling of the Covid-19 crisis. We should have a result by midnight local time tomorrow.

We expect the NZD to remain under pressure however, given the continued belief that the RBNZ could shift its policy rates below zero in the coming months.

Have a great day and a better weekend.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.