29/10/2020

Brexit impasse and rising Covid-19 cases hurts Sterling


GBP

Sterling fell against both the euro and dollar during Wednesday trading as the worsening global COVID-19 situation and current Brexit impasse took its toll on the risk sensitive pound.

According to the latest government figures, the UK reported another 24,701 cases of Covid-19 yesterday with a further 310 deaths. This rapidly deteriorating situation has put pressure on Prime Minister Boris Johnson to further tighten restrictions and follow the likes of France and Germany who re-introduced national lockdowns yesterday following the 40% rise in deaths in Europe over the past week.

Mounting pressure on the government follows a report by the Imperial College London who have shown that the Covid pandemic has reached a “critical” stage in England with the R number rising above 2 in parts of Southern England. This report is deeply concerning for the UK and follows comments by The Scientific Advisory Group for Emergencies (SAGE) yesterday that the second wave of Covid-19 cases in the U.K. paint a “utterly bleak picture” and could soon eclipse the hospitalisation peak of the first wave of 19,849 back in April.

EUR

Both France and Germany announced new restrictions On Wednesday evening as Covid-19 cases surged in Europe this past week. France went a step further imposing a nationwide lockdown, whilst Germany will close bars and restaurants for a month in an attempt to protect hospitals from being over-whelmed with Covid-19 patients as Europe battles a second wave of the pandemic.

USD

The dollar firmed during Wednesday trade benefitting from its safe-haven status as increasing global corona virus numbers raised fears that the already dented global economic recovery may take longer than investors had first hoped.

The dollar also benefitted from a flurry of safe-haven flow as traders hedged their positions ahead of next weeks US presidential election. As things stand, Former Vice President Joe Biden is leading the polls. A win for Biden according to analysts is expected to weaken the dollar as investors expect more predictable trade policies, less tension with China and a significant corona virus stimulus package to be agreed which would likely cause a reversal in safe-haven dollar demand. However, a lead in the polls doesn’t guarantee a democratic victory as Hilary Clinton had a lead over Trump in the polls for the entire 2016 campaign.

Economic Calendar

12:30 – USD – Gross Domestic Product (Q3) expected to read 31%
12:45 – EUR – Interest rate decision expected to stay at 0%
12:45 – EUR – Interest rate deposit decision expected to stay at -0.5%
13:00 – EUR- Harmonized Index of Consumer Prices (YoY) (Sep) Expected to remain at -0.4%


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