Sterling’s torrid ride due to Brexit headlines continued in yesterday’s session after the EU Chief Negotiator, Michel Barnier, confirmed that one of the EU’s envoy members tested positive for Covid-19, resulting in talks being delayed at a critical juncture. The pound traded under pressure for the rest of the session after this news, resulting in sterling sustaining losses despite broad USD weakness. This morning, Brexit headlines continue despite talks being placed on ice. EU envoys have stated that no progress has been made on the three main sticking points in negotiations, with the Brexit deadline sitting just 5 weeks away, while Belgian Prime Minister Alexander De Croo has reiterated recent statements by his Dutch and French counterparts in stating that EU countries must prepare for the likelihood of a hard exit on December 31st. Sterling is trading unfazed by the risk attached to the headlines as traders have arguably become more numb to stringent deadlines in the four years of Brexit. This morning’s front-page article in the Financial Times focuses on the latest UK debt data, which highlighted the largest budget deficit in the first seven months of the year than has been recorded over a full financial year since records began back in 1993. The UK government needed to borrow £260.8bn from April to October, but the size of the deficit is smaller than was feared back in the Summer after-tax revenues held up better than expected in Q3. Meanwhile, retail sales data for October surprised to the upside as well after volumes rose 1.2%, above the -0.3% consensus. However, any positivity in this data point has been wiped out by the national lockdown measures implemented in November.
Yesterday’s EU video summit on the divisions over the stimulus package passed largely without incident for the euro, which strengthened against the majority of the G10 currencies over the course of yesterday. The EU leaders made no progress in bridging the divisions as the Prime Ministers of Hungary and Poland held their objections against tying disbursements to upholding democratic standards. Negotiations will continue on December 10. This morning, the euro is trading on the back foot, which may be a better fit for the narrative of the current EU budget-infighting, an economy in lockdown and dovish European Central Bank expectations. The euro became the most used currency for global payments last month, outpacing the US dollar for the first time since February 2013, according to data from the Society for Worldwide Interbank Financial Telecommunications. Today’s economic calendar includes the advance reading of eurozone consumer confidence from November which is set to come in at -18.0 according to the median of forecasts submitted to Bloomberg. In terms of central bank events, the last trading day of the week follows the rest of the week with an agenda packed with policy maker speeches. Markets focus on various speeches by ECB’s Christine Lagarde, Luis de Guindos and Jens Weidmann, who will speak at 08:35 to 13:00 GMT.
The dollar gave up early gains late on in yesterday’s session as commodity currencies received a boost. Early in the trading session, rising hospitalisation rates in the US provided the dollar with a level of support as markets turned risk-off after rallying for multiple days of vaccine hopes. However, the risk climate soon received another boost as CNBC reported that top Senate Democrat Chuck Schumer said on Thursday that Majority Leader Mitch McConnell agreed to resume Covid-19 relief talks, bringing the prospect of fiscal stimulus back into view for the US macroeconomic outlook. While rising cases from the second wave in the US remain concerning, the double whammy of fiscal stimulus and vaccine hopes is helping support the 2021 growth outlook, which markets are repeatedly looking to trade-off instead of the near-term risks of further lockdown measures. Meanwhile, the state of Georgia confirmed Joe Biden as the winner of the November 3rd election after completing an audit of the ballots by hand, striking a blow to the Trump campaign’s tactic of contesting the election by claiming fraudulent votes and miscounting by ballot machines. Initially, the results showed Biden leading President Trump by around 14,000 votes. The recount ended with Biden taking a 12,284 win. Markets have arguably become numb to the outcome of the election as it is contested through the courts as many see a Biden victory as a given, but the latest results from Georgia arguably increase the likelihood of bipartisan fiscal stimulus in the Senate as the current intensifies against the Trump campaign. Today, the dollar is mildly rallying against G10 counterparts, but the price action doesn’t look definitive as of yet. This afternoon’s release of November’s preliminary PMIs at 14:45 GMT may provide markets with greater direction though.
The loonie joined the broad rally in the G10 space on news that bipartisan stimulus talks in the US would resume. The Canadian dollar reversed early losses to sit ever so slightly in the green on the day as the greenback’s rally reversed in the afternoon of the European session. Very little came from Canada in yesterday’s session beyond the news that Moody’s ratings agency upheld Canada’s top credit rating and stable outlook ahead of the announcement of the Autumn budget. The country’s economic strength and “policy effectiveness” give it a “very high degree of resilience to shocks” said Moody’s analysts, who also stated that record-low interest rates are offsetting the impact of record debt issuance. While Finance Minister Freeland was expected to announce the latest budget this month, it looks as if it will be delayed until December. In the interim, markets can enjoy Moody’s GDP projections. The ratings agency expects -6% growth this year, with a 5% expansion in 2021 and 3.5% in 2022 respectively. The affirmation by Moody’s will come as a relief to Prime Minister Trudeau after Canada lost its AAA rating from Fitch back in June on concerns over elevated spending. Today, the loonie is trading 0.1% higher against the dollar with retail sales data for September due at 13:30 GMT.