GBP: Helped by Brexit hope
EUR: Slim chance ECB could add stimulus today
USD: Pausing for breath
Sterling was comprehensively on the back foot yesterday as the wider weakness in investment sentiment and a clear rollover in risk appetite pushed the USD higher. The pound’s saviour came in the form of positive Brexit headlines with Bloomberg reporting that European Union and UK negotiators made progress this week towards resolving some of the biggest disagreements that have long bedevilled the Brexit talks, raising hopes that a deal could be reached by early November.
We’ve heard these reports before but there are two differences with this one; firstly the reporter is not one for histrionics and his sources are normally strong. Secondly, we are in a market that is happy to back its own beliefs in that a deal will be done. The bookies are offering 5/1 on that a deal will be done by the end of the year.
Sterling will once again spend most of the day watching from the side-lines but with at least half an eye on Europe given their Covid-19 lockdowns and the chances that similar may be coming our way soon, and the ECB’s response ahead of the Bank of England meeting tomorrow.
Today’s European Central Bank meeting comes at an interesting time with month-long lockdowns beginning in France and Germany and measures increasing in Spain, Italy and the Netherlands. While we still expect that the European Central Bank will hold off on adding further stimulus to the pot until its meeting in December, there is a risk that these lockdowns and the expected slowing of economic activity mean action is deployed today.
A sign of the slowing of economic optimism will likely come at 10am with the latest sentiment indicator from the Eurozone and while tomorrow’s GDP announcement should be huge – the first reading of Q3 GDP following the slump in Q2 – these new measures are marking down the prospects for the last quarter of the year.
Despite European earnings season tracking positively with businesses beating analyst estimates and upgrading full year guidance, equity markets are down hard globally with Europe bearing the brunt of this; we expect EURUSD and the wider single currency to remain weak into the US election.
Declines in global equities as traders faced up to the reality of European lockdowns and a US election put the wind in the dollar’s sails yesterday. Today could easily see that progress pause for a little bit but we can’t think that this means the end of the dollar rally, especially if polls forecasting a Democratic sweep on Tuesday evening are in anyway wrong.
Initial jobless claims at 13.30 will be the highlight of the US session.
A slight rebound in equities overnight allowed commodity currencies off the matt although we do believe this represents a pause and not a turning point for the risky currencies. AUD, NOK and RUB will still be in a lot of people’s minds moving forward as currencies that will see further weakness in the coming weeks.
Have a great day.