The pound falls as investors fear new restrictions
The weekend’s announcement of a new national lockdown in England sent the pound lower on Monday with investors factoring in the likely damage of new restrictions to the economy. Analysts now expect the economy to contract significantly because of the second lockdown, but still less than the record hit of 20% in Spring.
The new lockdown also increases the chances of new political uncertainty, as many within the government are upset with the new measures. Chancellor Sunak has been reluctant to enter the circuit breaker and has signalled his hopes that this will not go past December 2nd. However, senior government cabinet minister Michael Gove has said that the lockdown will be extended if no progress is made.
The one positive that yesterday showed is that the losses were not as damaging as expected, and this is squarely down to the optimism around a Brexit deal being struck. If investors were not positioning for a deal, the drop would have been far more significant.
The dollar picked up in the day before the closing of the polls as investors opted for a degree of caution when preparing for the outcome. This flock to safety that we saw yesterday strengthened the greenback and also shows that many are well positioned to take advantage of volatility when results arrive. Opinion polls have consistently shown Biden as being the leader in the presidential race, but US polls primarily take place on the West and East coast, not the Trump heartlands of middle America.
The one consensus analysts can agree on is that a Biden win would signal dollar weakness as he is expected to issue big stimulus and take a looser approach to trade. However as the result is expected to go down to the wire, dollar selling was limited yesterday in anticipation of the unexpected.
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