News & analysis


Sterling exhibited a minor flurry of strength in yesterday’s session as Chancellor of the Exchequer, Rishi Sunak, announced a new wage subsidy scheme to help ease the labour market off of the more expensive furlough scheme and aid companies retention of their workforce. The wage subsidy scheme is a spin-off of that used successfully in Germany in response to the financial crisis and again in response to the pandemic. Beginning in November, the new wage subsidy scheme will pay a third of a workers lost earnings should their regular hours be reduced by no more than two thirds, meaning the government will pay a maximum of 22% of an employees wage, down from the 80% and soon to be 60% covered by the furlough scheme. The emphasis is then on the employer, who will top up the employees lost wages by another third, with the employee taking the hit with the final third of lost earnings. While this is similar to the Kurzarbeit scheme used in Germany, there are notable differences. The main one is the emphasis on the employer to fill the gap in an employees lost earnings, which would, if not offset by the bonus from the job retention scheme, raise the businesses bottom line. In Germany, there is no emphasis on the employer to pay part of the employees lost earnings, nor does it require firms to pay social security contributions for the hours not worked. Additionally, for those who have seen their hours reduced for a longer period of time, the Kurzarbeit scheme sees a progressive increase in the level of government support, especially for those with children. Comparatively, the UK’s wage subsidy scheme sits at a 66% flat rate. Finally, workers in Germany can use the Kurzarbeit scheme for up to 24 months, whereas Sunak’s latest pledge will run for 6-months only at present. Many have argued that this isn’t enough and it came too late as many companies have already adjusted for the end of furrlough scheme in October. However, sterling saw these latest measures as a modicum of support. Additionally, yesterday’s session saw the UK post its largest number of new positive cases since the outbreak of the pandemic – 6,634 to be exact. While this was partly due to the increased level of testing, it struck ominous tones for what may be incoming so soon after the government tightened containment measures again. Today, with the dollar starting the Friday session soft, the combination of additional fiscal support from the UK outlined yesterday and a lightening tone around Brexit negotiations is helping the pound lift off from recent lows.


The euro is on track to book a 1% decline against the dollar this week as the greenback keeps benefitting from a deterioration in risk appetite. The US elections and fiscal impasse, Brexit, and record Covid-19 cases in the EU and UK have all likely generated risk-off flows into the safe havens this week. The surge in virus cases put hospitals in Spain under alarming strain with Covid-19 patients jumping from 25% a week ago to 39% this week. In France, the saturation of ICUs by Covid-19 patients reached more than 30% as well, despite the significant measures taken by the country. Other parts of the EU and UK are not yet seeing hospitals fill up with Covid-19 patients at the same pace as their French and Spanish neighbours, as the hotspots of infections in the EU and UK are mostly centered around younger people this time around. However, considering the current pace of the surges in case count, the prospect of hospital capacity reaching its limits very soon is not out of the question. This would weigh on the euro directly as the risks are centered around the eurozone as well, but risk-off flows into the dollar are following broader risk sentiment and are likely to only add to the downward pressure on EURUSD. This morning’s calendar will include eurozone M3 money supply data from August, scheduled for release at 10:00BST and expected to print at 10.1%.


The dollar started the last Friday of the month on a softer note, possibly putting a stop to the longest rise in the Bloomberg dollar index since March following upbeat comments from St. Louis Fed President James Bullard on the US economic recovery and hopes for a new round of fiscal stimulus. House Speaker Nancy Pelosi stated yesterday she is hopeful that stimulus negotiations with the Republicans will resume soon, while House Ways and Means Committee Chairman Richard Neal stated that a coronavirus relief bill from the Democrats could be voted on next week. Bloomberg reported that the stimulus bill would be around $2.4tn according to House Deomcratic officials. The plan is smaller than the $3.4tn package that the House passed in May, but much larger than the $1.5tn President Donald Trump has indicated he’d be willing to accept. Durable Goods Orders for August will be in focus for the US today, with the preliminary figure scheduled for release at 13:30 BST and expected to print at 1.4%. With less than six weeks until the November elections, uncertainty grows by the day in the US. Next week Tuesday covers the very first debate between Donald Trump and Joe Biden.


The loonie reversed its recent depreciationary trend in yesterday’s session as the dollar broadly softened and the leader of the New Democratic Party, Jagmeet Singh, suggested an alliance with Trudeau may be announced ahead of the confidence vote. Speaking with BNN Bloomberg, Signh stated that the latest move by Trudeau to raise the payments provided under replacement social security schemes to match the C$500 payment issued under the CERB scheme, which is set to expire this weekend, was what he was waiting for. The statement by Signh removes some of the political risk surrounding the loonie as it not points to Canada avoiding an early election but also a clearer passage for the fall budget once it comes to parliament. The loonie enjoyed this news and rebounded from recent lows to start retracing its moves earlier this week. The data calendar is light in North America today, meaning all eyes will be on the progression of Bill C-2 in parliament. The bill not only increases the level of support under certain replacement schemes, such as that aimed at gig economy workers, but also includes a C$500 a week benefit available for those who need to self-isolate for two-weeks due to testing positive.



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