25/09 – Sterling needs Brexit support to rally properly

GBP: Sunak launches Jobs Support Scheme

EUR: Stagnant for now

USD: Political news picks up next week

Sterling

Sterling was unable to react aggressively to the latest round of measures from Chancellor Sunak yesterday as doubts remain over the efficacy of the news Jobs Support Scheme and whether, at the margin, it will be enough to see employers keep staff on payrolls past the furlough scheme’s end in a little over 5 weeks’ time.

We expect that the cliff-edge is now going to turn more into slope that sees unemployment peak at around 9.5% of the UK labour force but the short, sharp stop will not be as pronounced as it would be without these measures.

Sterling may continue to rock and roll around these levels until clarity on Brexit is forthcoming. One cliff-edge may have been dealt with but another is not going anywhere despite the comforting words coming from both sides as we head into the weekend.

Euro

EUR has remained steady across the board in the past day or so although it has lost out against a slightly Sunak-inspired pound. Further headlines announcing stricter Covid-19 protocols should be enough to keep the single currency rallying from here.

US Dollar

The dollar is booking its best week since April currently as investor desire for a haven has risen dramatically as Covid-19 fears have increased in recent weeks. Dollar bulls are not hard on the accelerator today but the weakness seen in euro markets may be enough to drag the dollar higher on a trade-weighted basis.

There’s a fair bit of event risk for the USD next week, especially as the debates between President Trump and Vice President Biden begin on Tuesday evening stateside.

In the meantime, as long as markets are talking up the chance of additional fiscal stimulus the dollar should stay supported.

Elsewhere

News for commodity currencies remains resolutely poor with oil prices continuing to weaken. The concerns around further falls originate from the belief that greater supply is hitting the market just as the economic issues of a 2nd wave also hit, thus triggering a lower demand cycle. NOK was a case in point yesterday and those currencies tied to barrels of the black stuff – CAD, RUB, IDR – are in for a tough few weeks.

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.