GBP: Bank of England meeting due Thursday

EUR: Consolidating

USD: Shorts being squeezed

Sterling

Thursday’s Bank of England meeting is the main economic event this week with expectations focused on dovish noises from the central bank alongside a new run of possible economic scenarios as part of the Bank’s Monetary Policy Report. If our expectations are correct and the Bank of England doesn’t push back against the thought that the lower bound of UK interest rates is below the current level of 0.1% then we could be talking about negative interest rates in the UK by November time.

With this on the near-term horizon and continued chatter over the weekend about a lockdown within the M25 due to a rising infection rate, we may be looking at a week wherein the pound finds it difficult to push higher.

In the meantime it’s the first working day of a new month and therefore the UK manufacturing PMI sentiment number is due at 09.30 this morning. A small improvement is expected but while positive will show that the rate of recovery is far from rapid.

Euro

The single currency has slunk back from its recent highs against the USD but also against the pound and Swiss franc, two currencies that we can see it making further moves against in the coming months.

We will also be keeping an eye on the level of Covid-19 cases in Europe that have started to increase in recent weeks; cases in Belgium have risen by 70% whilst Spain is reporting 2000 new cases daily.

US Dollar

Friday’s markets closed with investors who are short the USD – betting that the dollar would continue to lose value – saw their positions squeezed. Such a move has faded in the overnight Asian session and the dollar now has to negotiate a market focused on continued talks around US stimulus for its beleaguered economy alongside speeches by some Fed members this week.

PMIs from Asian manufacturing sectors overnight have been enough to boost risk sentiment overnight despite the majority showing continued contraction in overall sentiment. Given Asian manufacturing’s focus on exports to the US and EU, contraction here is more a sign of pain for their consumers as opposed to at home.

The US’s own version of manufacturing sentiment is due at 3pm BST.

Elsewhere

The AUD continues to underperform some of its counterparts following a tightening of lockdown procedures in the state of Victoria. So far, it is the only state that has been affected but an increase in spread will continue to shade the AUD.

Have a great day.