23/09 – Sterling continues to sink

GBP: Sterling continues to new lows

EUR: Breakdown before virus measures not a good look

USD: Continues to gain support from the fearful

Sterling

As warned, sterling is back in the crosshairs given the sheer volume of negative news that is starting to pile up at its door. While markets had broadly expected changes to lockdown to contain Covid-19, Johnson’s insistence that this new regime may last for as long as 6 months took sterling lower initially.

Political noises this morning that suggest those in Cabinet would have preferred the PM to wait until the Chancellor is ready to announce further support for the economy may have had the sterling price up on their screens or phones as, without further news of support from Sunak, sterling looks vulnerable up here.

Sterling had initially started the day positively with markets taking comments from BOE Governor Andrew Bailey around negative interest rates as a sign that we may be waiting a while until the base rate heads lower from here. Some think this could be a sign that the Bank didn’t know about the government’s plans for 6 months of lockdown, some also think that this could mean a positive Brexit resolution soon. I think we may be looking at a central banker who didn’t want to be tied down.

Interestingly enough, I am currently re-mortgaging my house and not a single bank I have spoken to has been able to tell me what would happen if I elected for a tracker and rates went negative.

Brexit news continues to bubble away in the background with the UK and EU heading for a showdown over the Internal Market Bill at meetings next week. Barnier and Frost meet today ahead of another round of negotiations, but sterling will need more than pledges of possible deals for this downturn to be reversed.

Euro

Euro markets will be focused on today’s preliminary run of PMI data from France, Germany and Italy this morning which will give markets a signal as to whether the economic recovery was faltering in Europe before we saw an increased schedule of Covid-19 suppression tactics from governments.

EURUSD continued lower yesterday amid the recent dollar strength and looks set to test the 1.15s in the coming sessions.

US Dollar

Continual, steady declines in global equity markets is enough to keep the USD moving higher with investors happy to push into broad haven assets. As noted beforehand, traders will be nervous about getting too long of the dollar as we head into the election on November 3rd but for now, taking risk off the table is as close to a no-brainer as you can get.

Political news from the US suggests that Democrat plans to stall the replacement of Ruth Bader Ginsburg until after the inauguration have failed with moderate republicans announcing yesterday that they would vote for the President’s pick, suitability depending, as and when they are announced.

The dollar could still be influenced by this but it remains in democrat lawmakers’ hands should they wish to deny further stimulus a little over a month before election day.

Elsewhere

The AUD has continued to run lower this morning after Westpac, the local banking giant, announced its belief that the Reserve Bank of Australia will cut its interest rates at its upcoming October meeting. Markets now price in a 75% chance of interest rates being moved lower at the meeting on October 6th.

Have a great day.

Thanks for subscribing to our newsletter!

You've been added to our Chief Economist's mailing list for his morning reports.

Share:
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.