GBP: 72hrs from Brexit headline

EUR: Business confidence may undermine recent euro strength

USD: Dollar rallies as vaccine trial pauses

Sterling

Sterling did very little yesterday, using the US bank holiday as an extra day of weekend before the run in to the denouement of both Brexit and the US elections.

Sterling did pop a little higher afer PM Johnson confirmed that the UK is not in a place that necessitates a national lockdown although hospital numbers are increasing.

Elsewhere this morning you don’t need to be an economist to see the issues within the UK labour market summarised in today’s figures; a benefits claimant count of 2.7 million people driven by a record 114,000 redundancies on the quarter suggest that the end of the furlough scheme has come at a time where businesses are unable to hold on to staff.

The wider unemployment rate has ticked higher but remains heavily sedated by the furlough scheme and we expect a push towards the 9% level – a doubling of current unemployment levels – in the coming 6-12 months.

As we head into another wider period of increased lockdowns we have to remain cognisant of the effect of these weaknesses on consumer confidence, business investment levels and the impact of inflation possible in some Brexit scenarios. For a lot of people caught up in this unemployment survey, winter is going to be very tough.

There was limited market impact from the UK unemployment numbers but Brexit headlines are a risk to sterling today.

Euro

EURUSD peaked above 1.18 yesterday but never looked comfortable up there and the subsequent heaviness has caused a return to the 1.17s. The Eurozone’s latest ZEW survey of business expectations may not be enough for a meaningful pull lower in the euro but will likely add to the feeling that the single currency is living on borrowed time at these elevated levels.

US Dollar

The quest for a vaccine to Covid-19 is one of the market moving impulses that stays broadly out of sight but occasionally rears its head to deliver either encouraging or disheartening news. Overnight, it was the latter with Johnson & Johnson announcing a pause to their research study with the dollar rallying on the announcement and equity markets sinking.

The wider swell of USD weakness into the election remains unabated however, despite President Trump’s resumption of campaign duties in Florida. Polls suggest the President is losing the key battleground state 48-52 currently.

US inflation figures this afternoon are likely to suggest that there is a lot of road to travel before the Fed is able to meaningfully suggest inflation is entrenched in the US economy at their target level, limiting market pressure for an interest rate hike

Elsewhere

The wider pull lower in risk assets has further pressurised the AUD, a currency that was already on the back foot following China’s fix movements on Monday morning. China’s moves to halt purchases of Australian coal will also have weighed on the local dollar.

Have a great day.