US Election, Brexit and Lockdown provide Sterling volatility this week

Daily Currency Update

GBP - British poundOver the weekend, we saw the bombshell announcement from Prime Minister Boris Johnson that England is going into a month long lockdown to combat the significant rise in Coronavirus cases here. Growing scientific evidence indicated that infections were spreading at an alarming rate. One study released by Imperial College London concluded that the pace of the epidemic is accelerating, with almost 100,000 people catching coronavirus every day in England and the R number at 1.56, meaning infections are currently doubling every 9 days. The furlough scheme and some other financial incentives from the UK treasury are being extended, and schools and universities will remain open, unlike the first lockdown. Sterling opened up this morning already under pressure from the news, which is bound to have a significant impact on economic activity heading into Christmas. The last full lockdown was meant to be for a significantly shorter period, and hence investors are also pondering on whether a month will be enough to contain the virus.The Bank of England’s meeting on Thursday will be watched very closely for clues on whether it will increase its bond buying programme to prop up the economy further. The latest lockdown may also force its hand on interest rates, cutting into negative for the first time in history. Brexit negotiations are ongoing as France continue to play very hard ball in negotiations. President Macron’s rhetoric has been stern and forthright, and now the European Affairs Minister Clement Beaune warned the British government to ‘play no games’ with only a ‘few days’ remaining to conclude Brexit negotiations with a deal. There is a sense that PM Johnson has softened his stance a little in the last few weeks and a deal could be likely, which could benefit the pound, however the risks of a no-deal Brexit still remain very real, leaving us with volatility heading into the December deadline.