Lockdown Pressures Sterling, US To Decide
The UK PMI manufacturing index revised higher to 53.7 from 53.3 previously but the economic data had little impact, especially with a focus on coronavirus developments. There are also increased expectations that the economy will contract in the fourth quarter.
UK Prime Minister Johnson defended the new lockdown measures in the House of Commons and also announced that economic support for the self-employed would be doubled at a cost of £4.5bn. There was significant opposition within the Conservative Party, although the lockdown will be given the backing and approved.
Overall confidence in Sterling remains weak, especially with increased expectations of GDP contraction for the fourth quarter. The lockdown measures and increased financial support will also put further upward pressure on the budget deficit. The potential for a Sterling sell off was limited however, as hopes that a Brexit trade deal will be agreed in the first half of November with an official update expected before the weekend.
The UK currency dipped to lows near 1.2850 against the Dollar and 1.1080 against the Euro before picking back up against both. Markets will continue monitoring political developments with expected volatility high.
The US ISM manufacturing index strengthened to 59.3 for October from 55.4 previously and above consensus forecasts of 55.8. A stronger reading for new orders with production growth also firmer on the month while employment moved back into positive territory.
There will inevitably be caution today with markets waiting for the US election results as the Dollar overall posted monthly highs with expected volatility increased to its highest level since April. The US currency holds firm this morning with a reluctance to engage in aggressive positions, although the Euro did edge slightly above a 4-week low.
The Euro-zone manufacturing PMI index revised higher to 54.8 for its final October reading from 54.4 previously with the Spanish and Italian indices also beating consensus forecasts for the month. The data provided only limited relief given difficulties within the services sector. There were further important concerns surrounding Euro-zone coronavirus developments with Italy announcing that it would introduce a 3-tier system in an attempt to curb the increase in cases.
The Euro overall remains on the defensive amid expectations of further ECB easing and unease over the recovery outlook. As of writing, the Euro currently trades just over the 1.1670 mark against its US counterpart.
Data to watch
All Day – USD – Presidential election