25/09/2020

Sterling made a tentative recovery against both the euro and dollar


GBP

Sterling made a tentative recovery against both the euro and dollar yesterday benefitting from renewed Brexit optimism and the introduction of a new government scheme to support jobs.

British Chancellor Rishi Sunak unveiled his “winter plan” yesterday which included a new job retention scheme to help curb the threat of rising unemployment once the current government furlough scheme comes to an end next month. The new scheme aims to support viable jobs, with the government subsidising the pay of employees who are working fewer hours due to lower demand, with employers paying for hours worked and the government topping up the balance. Commenting on the effectiveness of the new scheme, Sunak admitted that it would be unclear how many jobs the scheme will protect but acknowledged something had to be done as some of the forecasts for unemployment do not make good reading. The reaction amongst investors to the news was fairly mixed with some applauding the move and others questioning the effectiveness of the new scheme. In particular, some investors are concerned that the plan doesn’t go far enough to protect against the threat of rising unemployment as the scheme excludes non-viable jobs (those that are unable to work one third of their normal hours).

Increased hopes that Britain and the European Union can overcome their differences to secure a trade agreement by the end of this year adding a level of support for sterling yesterday. According to reports, the “EU are open to a thin trade deal” with EU Chief Negotiator Michel Barnier cautiously optimistic a deal can be struck. There had been hope that a draft legal text would be ready for the 15th October summit but with time running out on this deadline, the likely scenario would be to see a deal agreed in principle with the draft legal text provided at a later date. With next week being the final formal negotiating round before the EU summit, investors will be paying close attention to developments, as a lack of progress here could negate recent optimism.


Key announcements

  • 13:30 – USD – Durable Goods Orders (AUG) expected to fall to 1.5% from 11.4% previous
  • 13:30 – USD – Non defense Capital Goods Orders ex aircraft (Aug) expected to fall to 0.5% from 1.9% previous

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