GBP: Brexit messaging to increase
EUR: Consumer confidence gets to the heart of the issue
USD: Sold off as investors take on more risk

Sterling

Sterling is a little higher this morning against the dollar on a generalised pick up in risk sentiment overnight but concerns remain that we could be heading into the most volatile month for sterling since the EU referendum nearly 4 years ago.

By the end of the month, the decision must be made on whether the UK and EU extend the current transition period to allow more time for talks on trade; if not, then a deal must be put together by the end of the year or we risk leaving the EU with no deal. This remains the nightmare scenario for sterling.

Given the government’s travails over the weekend we expect messaging on Brexit to ramp up; the government was elected on Brexit and will use a strong hand in negotiations to try and sure up any fissures caused by the movements of Boris Johnson’s right-hand man, Dominic Cummings.

Euro

European news over the weekend has not been particularly inspiring and the single currency is losing a bit of ground as we open up this morning. German consumer confidence numbers released this morning encapsulated a problem that services economies are facing moving forward; while businesses will open up as lockdown procedures are withdrawn, shoppers may still be fearful of embracing what their lives used to be.

There is little to move the euro today.

US Dollar

The belief that the world is past the peak of infections of Covid-19 is bolstering risk assets and moving investors to sell the dollar this morning. The news that Japan has ended is nationwide emergency status and the infection rate in the US continues to drop are all strong signs that investors are latching on to.

Similar spikes in risk have not lasted long, punctured by arguments over economic stimulus, fears over the length of time that it may take for a vaccine to be developed and issued, or concerns that a 2nd spike is coming. For now, all those issues seem to be in check and hence the USD weakness.

US consumer confidence numbers are due at 3pm BST.

Elsewhere

We are going to be watching the Chinese yuan a lot closer in the coming months as the prospects of a fresh round of US/China aggression seems only a whisker away at the best of times. We expect that President Trump will want to have a hard stance on China in time for the election at the end of the year, with USD/CNH the obvious barometer of risk in such a circumstance.

We used to talk about whether USD/CNH would break above 7, now it’s a case of by how much.

Have a great day, and please take care.