Perilous Turning Point
23rd September : Highlights
- New Covid restrictions hit Sterling
- Powell nudges Congress over fiscal stimulus
- Confidence improves but still in negative territory
Johnson voices concerns as new restrictions announced
Johnson labelled the new measures vital as the hospitality industry will be hit hard again and this would appear to be the final chance before the announcement of another total lockdown. All pubs, bars and restaurants will now be forced to close at 10pm and anyone able to work from home should do so.
Andrew Bailey the Governor of the Bank of England has performed something of a U-turn over the Governmen’ts winding down its support for business. The various furlough schemes are being wound down and are due to finish at the end of next month.
Bailey, speaking in August supported the ending of the arrangements, but yesterday commented in a speech that he feels that the Government should stop and rethink. Bailey would support the continuation of the scheme to assist certain sectors to retain staff.
This view is likely to gain support after the tougher restrictions that have been announced.
9.5 million workers have been supported by the scheme and Bailey confirmed that he is open-minded about its continuation, saying that he would not wish to see the Chancellor have his hands tied.
Given the significance of service industries to GDP, the moves announced yesterday which come into effect tomorrow, will limit the economic bounce back that has been seen since lockdown measures were eased.
Yesterday, the pound gyrated as the new rules were laid out and traders saw a complete lockdown as a real possibility. Johnson warned that the current restrictions may have to be in force for the next six months.
Sterling fell to a low of 1.2710 versus the dollar closing at 1.2733.
Recovery depends on Control of virus and further stimulus
While Europe struggles with measures to curb a second spike in infections, the U.S. continues to grapple with the first spike as several States continue to see rates of infection levelling off but remaining fairly constant.
Powell told the committee that the recovery depends on keeping the virus under control and continued, possibly increased, support from monetary and fiscal policy.
He has been at pains to say on several occasions that the Fed stands ready to do all it can to ensure that the recovery gains pace and his remarks were clearly directed at the lack of agreement between Congress and the Administration over the renewal of the Pandemic Support Measures.
Steve Mnuchin, the Treasury Secretary, joined Powell and confirmed to the Committee that the Administration continues to work closely with Democrats to find common ground to provide further support.
Mnuchin said he supports a more targeted package of support to ensure that help is provided where it is needed most. The original support was more general and was available across the board to anyone who needed it. This is seen by Republicans as a disincentive to look for work and has been labelled Unamerican.
Chicago Fed President Fred Evans speaking at a conference in London yesterday that was held virtually, broke ranks somewhat with his colleagues at the FOMC by commenting that he feels that rates could start to be raised in advance of inflation hitting the 2% target. This is contrary to Powell’s recent comments that the Fed will allow the 2% level to be broken before rates need to be increased.
Evans did support the calls for a support package to be agreed sooner rather than later as the country’s recovery from the recession could be threatened. He becomes a voting member of the FOMC next year, so his comments carry a measure of importance.
Yesterday, the dollar index rose to a n eight week high of 94.08 and closed just below the important 94 level at 93.97.
Euro slump continues
The census on confidence will have been taken before the latest growth in cases of Covid-19. There is now a real concern that not enough is being done to curb the spread of the virus and lessons from the original outbreak have not been heeded.
Back in March, the outbreak was treated on a country by country basis which quickly grew into every man for himself. This runs contrary to the overriding tenets of the EU and its desire to move to a more Federal approach.
With a massive difference between the current rise in infections between Germany and Italy on the one side, where the spread appears under control and Spain and France on the other, where further restrictions continue to be imposed, the free movement of people may have to be curbed with national borders being closed as they were in March/April.
Today will see the release of preliminary data for economic activity. The data for the entire region is expected to show a marginal increase over August for manufacturing while services remain the same or possibly fall. The composite figures are expected to remain the same at 51.8 which continues to show expansion.
For Germany, the outlook is a little stronger, with manufacturing rising from 52.2 to 52.5 and services from 52.5 to 52.9. Any weaker read will undoubtedly see the euro accelerate its recent fall.
Yesterday, the single currency fell to a low of 1.1691 versus the dollar, closing at 1.1707.
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.”