06/01/2021

Brexit optimism overshadowed by new lockdown measures


GBP

The Pound was pretty flat yesterday, holding at levels well below the two and a half year high against the Dollar we saw in the aftermath of the Brexit talks coming to a successful end, as a new lockdown deflated optimism from a post-Brexit trade deal with the European Union.

The new measures, which some economists predict could cost about 10% of economic output for as long as they last, deflated any lingering positivity around the British currency and sent it backwards from its highest levels since May 2018. The expected upcoming hit to the economy added expectations on the Bank of England to announce more policy easing. Currency markets have now heightened the possibility of the central bank to cut benchmark interest rates as early as May, compared with an August estimate just after the Brexit deal was struck.

USD

Most attention in the US is currently focused on the current US Senate elections in Georgia, with the winner deciding which party ultimately controls the senate.

A Democratic victory in both seats would give Democrats control of the Senate, paving the way for further stimulus measures as well as higher corporate taxes and more regulation. As of this morning, exit polls predict one seat to certainly be won by a Democrat, with the other seat still too close to call.

Key announcements

13.00 – German CPI, expected to rise to -0.6% from a previous -0.7%
13.15 – US ADP employment change, expected to drop to 88k from a previous 307k
14.00 – Bank of England Governor Andrew Bailey speaks


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