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Further Restrictions Continue To Undermine Sterling Sentiment

Further Restrictions Continue To Undermine Sterling Sentiment

GBP

In comments made yesterday, Bank of England Governor Andrew Bailey stated that the third-quarter economic recovery had been slightly stronger than expected in August, but there was still a high degree of uncertainty and downside risks prevail. He reiterated that the central bank would use all its tools to provide as much support to the economy as possible and that it would be flexible in returning inflation to target. Additionally stating that negative interest rates should be part of the toolbox, although last week’s statement did not imply that the bank would use negative rates. After declining sharply at the start of Tuesday’s trading session, a strong rally back to the upside followed Bailey’s comments.

There were some slightly more positive comments from EU sources on Brexit talks, but uncertainty remained extremely high amid logistics reservations. 

The introduction of further coronavirus restrictions also undermined Sterling sentiment, especially given the damage to the services sector of the economy. Reports emerged that Chancellor Sunak would introduce wage support policies as Foreign Secretary Raab warned over a potential second lockdown. The number of new coronavirus cases also increased to near 5,000, the highest figure since early May as Sterling remained on the defensive and dipped to 2-month lows below 1.12700 against the Dollar and 1.0860 against the Euro. 

 

USD

US existing home sales increased to an annual rate of 6.00mn from 5.86mn previously and in line with consensus forecasts. The Richmond Federal Reserve (Fed) manufacturing index strengthened to 21 for September from 18 previously with a stronger rate of growth in new and unfilled orders. The number of employees increased and there were further skills shortages. The Philadelphia Fed non-manufacturing index strengthened to 8.0 from 1.6 previously, although there was a slowdown in new orders growth.

There were more hawkish than expected comments from Chicago Fed President Evans who stated that he did not see open-ended quantitative easing as providing an important part of the answer. He also suggested that rates could be increased before the inflation target is reached, although he also called for further fiscal stimulus measures. The comments from Evans pushed the dollar to a fresh 6-week high.

 

EUR

The Euro’s downward move against the Dollar is gathering pace, with the Euro bulls needing a better than expected PMI report figure to arrest the fall in the common currency. 

The pair are currently trading around the 1.1690, which is the lowest level since July.

Investors have offered Euros on renewed fears of coronavirus lockdown restrictions across the Eurozone and relatively less dovish comments by Federal Reserve’s policymakers. Eurozone consumer confidence recovered slightly to -13.9 for September from -14.7 previously and slightly above consensus forecasts.

Additionally, The EU Summit which was scheduled for September 25-26th has now been delayed a week after EU Council leader Michel tested positive for coronavirus.

 

Data to watch

08:15 – EUR – French Flash Services PMI 

08:15 – EUR – French Flash Manufacturing PMI

08:30 – EUR – German Flash Manufacturing PMI

08:30 – EUR – German Flash Services PMI

09:00 – EUR – Flash Manufacturing PMI

09:00 – EUR – Flash Services PMI

09:30 – GBP – Flash Manufacturing PMI

09:30 – GBP – Flash Services PMI

14:45 – USD – Flash Manufacturing PMI

14:45 – USD  – Flash Services PMI

15:00 – USD – Fed Chair Powell Testifies 

15:30 – USD – Crude Oil Inventories 

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