The defining week
12th October: Highlights
- Covid and Brexit coming to a head
- Trump’s new offer rejected by Pelosi
- Macron in danger of becoming Brexit Fall Guy
Johnson’s deadline looms and new restrictions announced
Prime Minister Boris Johnson’s self-inflicted deadline for a Brexit deal to be agreed expires on Thursday, while later today he will announce further restrictions that will be made to try to halt the spread of the virus.
It is expected that he will announce a three-tier system based around the number of infections per 100k of population with areas in the north of the country likely to see the most significant constraints.
There have already been several complaints, particularly from Northern Mayors, concerning Chancellor Rishi Sunak’s announcement of Friday that any individual or business that is forced to close or stop work due to the new restrictions will be paid 66% of their wages. The complaints are primarily around the ability of those affected to survive on ⅔ of their income particularly with the Holiday Season approaching and the restrictions expected to last well into next year.
This will be Johnson and his Health Minister Matt Hancock’s last chance to get it right before there is an overwhelming need for a complete lockdown.
Official talks regarding Brexit have seen several final sessions but they have rumbled on with both sides becoming more eager to find an agreement as the realization dawns that no-deal is the least favourable outcome for both sides.
It is unclear whether Boris Johnson’s deadline of this Thursday, October 15th, for talks to come to a conclusion, before he concludes that the UK will not negotiate any further and it will leave with no formal trade arrangements or a decision on the future relationship, remains firm. HIs most recent comment was that the decisions need to be made by October 15th to enable British businesses to adopt the necessary changes and comprehend the procedures.
This week is surely to involve a degree of volatility for the pound, with risks very much to the downside.
Early last week, Sterling was rejected on any attempt to breach the 1.30 level versus the dollar but finally managed to break through on Friday reaching a high of 1.3055. It closed at 1.3033.
Versus the euro, the pound has remained in a fairly narrow range between 1.0850 and 1.1050. It has been fairly volatile between those levels and closed at 1.1030 on Friday.
Trump tries for moral high ground… Fails
Regional Federal Reserve Presidents have been unusually vociferous about their concerns. This is a major shift for the Central Bank where in the past there has been a single voice, that of the Fed. Chairman, in this case Jerome Powell, who speaks for the entire FOMC.
While at first glance this would seem to indicate dissension in the ranks, that is far from the truth, with support for both the policies and comments of the Fed. being supported.
It may be that, unusually, the issues facing the economy have become so regionalized that the requirements of individual States vary to such a degree that their Fed. Presidents feel impelled to speak.
Either way, their demands for a Support Bill to provide relief for those most badly affected to be agreed by Congress become ever more strident.
The game of political ping pong continues on Capitol Hill.
President Trump performed a significant U-turn after having declared that there would be no more negotiations until after the election.
He proposed a relief package valued at a little over $1.8 trillion which was unpopular with both sides of the aisle. Nancy Pelosi, the Democrat leader, said it was too little, while Republican Congressmen predictably said it was too generous.
This week will see continued calls for an agreement but with the election looming it may very well take until after November 3rd for anything agreeable to all sides to be proposed.
Joe Biden retains his lead in the polls but there is a growing feeling that it will again come down to a handful of swing States. While Biden is ahead in those States, it is by less than his national lead, and stranger things have happened.
The dollar index remains pressured by the inability of the Administration to provide a support package. While several commentators put this down to a fall in risk appetite, it is far more likely driven by concerns over the elongation of the recovery due to slowing jobs growth and concerns over a fall in retail sales.
It fell to a low of 93.00 and closed the week at that level.
Fishing rights set to be the final straw
This is not an area of talks that was expected to be a major stumbling block but with other issues being resolved one by one, it has stepped into the limelight driven mainly by concerns voiced by French President Emmanuel Macron.
Faced by the traditionally belligerent French Agriculture and Fisheries lobby, Macron, who faces re-election in 2022 must be seen to be protecting the right of French fishermen to work in UK waters or face losing the support of one of his major supporters.
Macron, who is hoping to take over the mantle as champion of a more Federal Europe must also be seen as being a strong supporter of EU rights.
On the other side, the UK’s fishing fleet while not as vociferous as the French, represents the sole area of income for a large area in the South-West of the UK which would be devastated by incursions into its rights due mainly to the loss of a significant part of its new export market.
While negotiations continue, the economy remains gripped by fears of a second lockdown with major cities like Madrid and Paris close to declaring that all businesses and hospitality venues must close.
Inflation data will be released tomorrow, and this is sure to have an influence over both the ECB’s considerations and the path of the single currency.
Last week the slow steady rally of the euro continued and is now beginning to catch the eye of ECB members and exporters in the entire region. It reached a high of 1.1831, closing at 1.1826.
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”