News & analysis

GBP

After climbing for four days on the bounce, the pound is struggling to hold its recent highs this morning as the market’s appetite for risk starts to unwind. The announcements that major economies will continue to tighten lockdown measures, albeit in a localised manner for now, continues to weigh on risk appetite as downside risks to the global economic recovery start to materialise. In this vein, the government’s announcement of a three-tiered localised lockdown system is likely to have sparked fears of a more widespread lockdown in the UK. Currently, around a  quarter of the UK’s population is subject to additional lockdown measures, with Liverpool grabbing the headlines due to its rapidly deteriorating situation. In addition to the traffic light system, the UK government is facing an increasingly difficult situation after the Scientific Advisory Group on Emergencies (SAGE) released a bumper document of guidance to government officials. The documents reveal the government rejected the proposal of a “circuit-breaker” lockdown back in September, which would likely have avoided the broad swathe of localised lockdown measures currently implemented. Additionally, it highlights how the benefits of the 10pm curfew are only marginal, with the economic costs sitting higher. Given SAGE’s advice and the rapidly deteriorating situation in the north of England, speculation is rife when it comes to the prospect of a “circuit-breaker” style lockdown at the end of October when schools are set to break – watch this space. The jury is out on how markets would trade such an event, which would undoubtedly strike another blow to the UK economy but arguably a less severe one than elongated localised measures. The proof will be in its success if enacted. On the data front, today saw the UK’s claimant count data report a 28,1000 increase in the number of jobless claims, resulting in a marginal uptick in the unemployment rate from 7.5% to 7.6%. However, the data has been vastly overshadowed by the domestic Covid situation as sterling retraces recent gains this morning.

EUR

Much of the decline in EURUSD this morning stems from a boost in the US dollar as headlines around the pause of the Johnson & Johnson vaccine trial and a continued surge in case count globally boosted safe haven bids. Pressure in European hospitals is expected to grow as cases surge, with Germany’s case count rising at its fastest pace since early April and the Netherlands and France on track to tighten containment measures further. The Netherlands will announce new measures tonight. Meanwhile, Belgium has rapidly become the second-hardest hit country in Europe with more than 10% of the tests performed in the past week producing a positive result. France’s Prime Minister Jean Castex reiterated that France must avoid another general lockdown by all means possible, as “it is essential for companies to keep working, and children to keep going to school”. The focus in today’s data calendar turns to Germany’s ZEW expectations, released at 10:00 BST. The median of the forecasts submitted to Bloomberg sees the expectation index falling to 72.0 from last month’s 77.4. Chances of the figure exceeding last month’s number are low, as it hit a 20-year high last month and output looks to have drained the source of stimulus provided by the economy re-opening. However, even if the release would not surprise to the downside and print exactly at the expected value, this says little about the actual state of the economy as risks to both the German and the eurozone economy have increased over the last few weeks given the unprecedented surge in case count.

USD

The dollar has enjoyed a mild pause in its downward trend overnight after Johnson & Johnson halted its trial of a vaccine for Covid-19. Today, the US will return to work – and international markets – after enjoying Columbus Day yesterday. After President Donald Trump and House Speaker Nancy Pelosi traded barbs over stalled stimulus talks over the weekend, there was no further news on the topic yesterday. Today’s data calendar will be a relatively interesting one, with the National Federation of Independent Business releasing the results of its latest Business Optimism survey at 11:00 BST, followed by official inflation data at 13:30 BST.

CAD

After a long weekend to enjoy Thanksgiving, Canadian market participants will return today to see the loonie sitting at levels not seen since September 8th. The Canadian dollar continued its recent rally in yesterday’s session, which was relatively muted given North American markets were closed, despite oil falling back below $40 per barrel again and the province of Ontario imposing a 28-day lockdown over the weekend. With it being a market holiday, little additional information was released in Canada yesterday, meaning today’s focus will be on domestic case count data and broad risk appetite in markets.

 

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