The last week definitely flew by quicker than usual… the risks we had last week are in some ways different to what is ahead of us now- President Trump is now out of hospital and back in the White House, recovered from Covid-19 and promising free treatment for elderly citizens in the U.S- How this is going to bode with the electorate I guess we will find out next month!
Exchange rate wise- Sterling has been trading sideways throughout the week- with GBPEUR between 1.09-1.10 and GBPUSD between 1.29-1.30- both very tight ranges. This says to me that traders are not convinced a no deal is going to happen- if that was the case everyone would be selling off these pairs and we would be a lot lower.
At this point I think traders are looking for a signal from the negotiations on direction- and this may happen on October 15th at the EU Summit- this is when the EU will signal whether a deal looks possible or not. As you all know, I am optimistic on a deal, and it seems both PM Boris Johnson and Macron had a conversation this weekend echoing this sentiment as well- my opinion has always been that it is the leaders that will ensure the deal happens, not the negotiators- and this is slowly coming into fruition. HOWEVER, the market is not led by what I think, so we are still at a 50/50 on whether a deal happens or not, and we need to be positioned accordingly, especially if you have a transaction coming up over the next 30-90 days.
To balance the above out though, the UK is still seeing rising Covid cases- and PM Boris Johnson will be discussing new localised lockdown measures in Parliament on Monday using a new “Traffic Light” system, with a new furlough scheme being put into place by Chancellor Sunak last week, it seems the UK is getting ready for localised lockdowns that will be enforced by local councils- however it seems the new furlough scheme isn’t being met with much positivity due to the amount being contributed by the Government is a lot less compared to the last lock down, so we could potentially see this changed.
On Tuesday we have jobs data in the UK which we are now expecting to get worse every month, with the initial furlough scheme being withdrawn at the end of October- we are expecting further jobless claims and a lower employment change and subsequently a higher unemployment rate- this could well be priced in, but any deviation on this would affect the exchange rates.
Aside from currency, I hope you are all keeping safe and well- this year has definitely not been an easy one but it has made me smile speaking with you all and learning different ways of coping with the current new normal- if you ever need anything from me, I am always here in the home office.