Sterling falls two-month lows
Sterling fell to two-month lows yesterday after Boris Johnson announced the new long-lasting Covid-19 restrictions. The new measures included extending the use of face coverings, increasing the fines related to breaches of the restrictions and a 10pm curfew for hospitality venues. The move by the government to re-introduce restrictions follows the sharp rise in coronavirus cases in the UK and the rest of Europe and is an attempt to protect the National Health Service from being overworked. The investor response has been one of disappointment with the pound falling sharply and quickly, with fears mounting that the impact to the UK economy could be hugely damaging.
There was some respite for the pound in early Tuesday trade as Bank of England governor Andrew Bailey announced that the latest policy statement did not imply that negative interest rates would be implemented imminently. Instead, Bailey stated that the discussions were necessary to understand their effectiveness.
The latest restrictions, the end of the job retention scheme and the possibility of a no-deal Brexit, investors are worried about the possible lasting damage to the UK economy that could keep the pound lower for the foreseeable future.
The dollar rallied against the pound and euro yesterday benefiting from its reputation as a safe-haven currency following the resurgence of coronavirus infections in Europe and the United Kingdom.
The dollar was also aided by comments from Chicago Fed President Charles Evans who struck a hawkish tone yesterday by mentioning the prospect of rising interest rates. Evans who is due to become a voter on policy setting next year made the comments when discussing the Fed’s new 2% inflation target, stating that the Fed may in fact raise rates before averaging 2% inflation. This is a stark contrast to recent comments from Fed Chair Jerome Powell who mentioned rates would not be raised for “years” until the 2% inflation target is regularly hit.
- 07:30 – EUR – Markit Manufacturing PMI (GER) (SEP) expected 52.5 from 52.2 previous
- 07:30 – EUR – Markit PMI Composite (GER) (SEP) expected 54.2 from 54.4
- 08:30 – GBP – Markit Services PMI (SEP) expected 56 from 58.8 previous
- 14:00 – USD – Fed Chair Powell speech
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