Sterling shot up yesterday on headlines that trade negotiations were showing “some progress” according to unnamed sources. The news on the progress helped the currency unwind some of its recent negative trading as the tone of discussions suggested the UK wouldn’t walk away from the table should a deal not be struck in time for the EU summit. EU leaders are set to meet today in Brussels for the two-day summit with little to discuss in the form of Brexit progress. Despite this, headlines from the Belgian capital and Westminster will continue to drive sterling price action as the risk of a full breakdown in talks remains on the table, while the possibility that negotiations will enter the “tunnel” is also a potential outcome. Meanwhile, UK Prime Minister Boris Johnson has more to worry about than a post-Brexit trade deal. The Covid-19 situation in the UK continues to deteriorate, raising the pressure on the PM to embark on a two-week “circuit breaker” lockdown favoured by opposition leader Keir Starmer. Ministers and officials are set to brief MPs from northern England today about proposals for further curbs, while Health Secretary Matt Hancock will update MPs in the House of Commons at around 11:30 BST. It isn’t just the north of England that is facing the possibility of fresh lockdown measures, however, as London Mayor Sadiq Khan weighs tightening measures in the capital city in the coming days. With the growth outlook deteriorating on tighter lockdown measures and Brexit uncertainty plentiful, the pound sits marginally lower today with another volatile session undoubtedly ahead.
The G10 currency board sees a clear risk-on risk-off divide this morning, with the euro weakening against the Swiss franc, US dollar and Japanese yen, while rallying against the others. The ongoing deterioration of the virus situation in the eurozone, accompanied by renewed containment measures in France and the Netherlands this week, has likely been behind the safe haven flows seen since last night. Germany, the eurozone’s largest economy, is considering imposing further restrictions if the situation fails to improve in the near future, as it has reported the largest daily increase since April. European Central Bank President Christine Lagarde speaks at the IMF conference at 17:00 BST today, but she is unlikely to reveal much new information as the worsening virus situation brings more uncertainty to the economic outlook. However, any confirming comments on the ECB’s pledge for accommodative monetary policy may induce some modest euro price action, as will any reveals from the EU summit.
In contrast to yesterday morning’s price action, the dollar is trading on the front foot this morning and is up or flat against most major currencies, with AUD and NOK registering the biggest losses. The US election and confirmation hearings for Supreme Court nominee Amy Coney Barrett are the main focuses of news flow, with no further substantial news on the topic of stalled fiscal stimulus talks. Joe Biden’s presidential campaign reported that it had raised a record-breaking $383 million dollars in September. The Trump campaign has not released its September fundraising numbers, but lagged their opponent’s total by around $150m in August. Elsewhere, more than 50 business leaders in the US issued an open letter calling for all votes to be counted following next month’s presidential election, and warning “The health of our economy and markets depends on the strength of our democracy”. Biden continues to lead Trump handily in polls, although 2016’s polling error remains fresh in the minds of market participants. Fed Vice Chair Richard Clarida said in a speech that recent economic data had been “surprisingly strong”, and touted the benefits of the Fed’s massive monetary easing this year as delivering low rates and credit availability. Today’s data calendar includes manufacturing survey indices from the New York and Philadelphia Federal Reserves at 13:30 BST, accompanied by weekly initial jobless claims.
The loonie rally has started to show the signs of running out of steam as the currency declined marginally for the second day running yesterday despite a rise in oil prices and a broadly declining dollar. With the greenback trading on the offensive today, the Canadian dollar has started a third session in the red today, with little data apart from ADP payrolls to help turn around its fortunes. Stalling signs of US stimulus could be one explanation as to why the loonie has been trading lower over the last few days as Canada sends 75% of its exports to the states. Meanwhile, yesterday Prime Minister Trudeau announced Canada will keep its borders closed to the US until their level of domestic cases subsides.