GBP: Sterling resolute following Sunak announcements

EUR: No Brexit movement yet

USD: Thanksgiving should keep things quiet

Sterling

The pound remains at elevated levels in these markets although we shouldn’t mistake GBP’s outperformance against a weak USD as a sign of overall pound strength.

Yesterday’s spending review had little for sterling watchers in the short term. While Chancellor Sunak could not have been clearer as to the task that the UK economy faces to overcome the economic damage wrought by the pandemic, his spending review seemed to mix a message of parsimony for some and profligacy elsewhere.

We didn’t expect comments on tax yesterday but should the OBR’s estimates be correct in that the UK will not recover to pre-Covid levels of output until 2 years from today, then the taxman needs to stay away from consumer incomes, corporate taxes and such like for at least that time; otherwise the recovery will be elongated in a myopic view of ‘balancing the books’.

Health Minister Hancock will announce which areas of the country will fall into which tier of Covid-19 controls at 11.30 this morning in the Commons; the expectation being that most of the country will fall into 2nd tier of controls with Manchester in Tier 3 and some parts of Cornwall and Cumbria escaping into Tier 1.

These tiers are set to be reviewed every fortnight with upgrades, particularly for major, metropolitan areas, likely to hurt sterling via lower growth expectations.

Euro

Neither euro nor sterling have paid too much attention to the most recent Brexit pronouncements that suggest negotiations over the three sticking points that are yet to be decided upon have once again become deadlocked.

Reports last night suggested that EU negotiatior Michel Barnier has told his UK counterpart David Frost he sees no need to travel to London at the weekend for more ‘probably pointless’ talks unless there’s movement on the three key sticking points.

Alongside the necessary time needed for legal ratification of the agreements, translation into Eurozone languages and then voting on by European parliaments, those in Brussels are becoming more and more agitated that a deal needs to be signed in the next week or so.

US dollar

It’s Thanksgiving in the US and therefore we expect the next couple of days to slow down. US equity markets, which have been a huge driver of prices in the past months are closed today and will be lightly traded tomorrow and so wider FX may have to look for further catalysts for moves.

Yesterday’s deluge of data had a couple of interesting notes including the worst jobless claims data for five weeks; hardly a surprise given rising Covid-19 infection rates. All in all however, the good data was just good enough for bulls to not have to change their mind and the bad data was just bad enough to allow the bears to not have to either.

Elsewhere

Away from the news above, very little is taking place in FX. The main announcement today will be the latest policy decision from the Swedish central bank, who are expected to hold both their rates and QE policy this month.

Have a great day and happy Thanksgiving to all our American readers.