Fishing Rights leading to No Deal?
Morning mid-market rates – The majors
8th October: Highlights
- UK Cabinet split over economy versus lockdown
- Fed minutes confirm challenges ahead without stimulus
- Manufacturing accelerates while services falter
Covid and Brexit combine to push Sterling lower
The ability of the EU’s fishing fleet, particularly those from France to fish in UK territorial waters, has often been a source of controversy and as is often the case, this time it is exacerbated by politics.
French President Emmanuel Macron is facing an election campaign in 2022 and is struggling for support. He is under pressure from the powerful agricultural and fisheries lobby to stand firm over an agreement in this matter or face being ousted from office.
UK Chief Negotiator David Frost is also standing firm, although following last week’s talks between the two sides leaders, it is unlikely to lead to a complete breakdown. There is a fear in the South West of England that the fishing industry, its major source of income, could be thrown under the bus in the name of political expediency.
Covid infections are continuing to rise even in areas of Britain with stronger lockdown measures in place. Scotland announced a move towards a full regional lockdown yesterday for an area across the centre of the country that includes both Glasgow and Edinburgh.
Hospitality venues can only open indoors between 6am and 6pm with no alcohol to be served indoors. Outside, alcohol can be served up until 10pm. Scottish weather is likely to mean that is a virtual lockdown.
There is news this morning that England is likely to follow suit with a new set of restrictions being worked on.
There is a distinct timeline that began when the hospitality sector in the UK was allowed to reopen that has been exacerbated by the return of university students. While there are non-university towns that have seen a sharp increase and university towns that have not, there is pressure for face to face learning to be curtailed.
The pound is seeing continued selling pressure on any approach towards the 1.3000 level versus the dollar. Yesterday, it made a high of 1.2929 having reached 1.3007 the previous day. It closed at 1.2916 but with the economic effect of more significant lockdown measures bound to have an effect, the downside is looking more vulnerable.
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Analysts predict a weaker dollar on Biden victory
However, while Biden’s lead has close to doubled since the first Election Debate that is in nationwide polls. In the six or seven swing states that will decide the entire election, Biden still leads but so did Hillary Clinton four years ago by a similar margin.
Of course, this time Trump is a known quantity, with a record to defend which in various sectors is questionable at best. With less than for weeks of polling remaining it will take something special from the President to see him re-elected.
Several Regional Federal Reserve Presidents have backed the Federal Reserve Chairman Jerome Powell in his calls negotiations to be continued to find an agreement over additional financial support for those affected by the pandemic. The language being used is becoming more strident every day.
The President has said he will sign off on limited support but negotiations between Steve Mnuchin and Nancy Pelosi are unlikely to continue until after November 3rd.
The minutes of the latest FOMC meeting were released yesterday.
Despite the concerns over support, Fed members believe that the economy is recovering from the Q2 contraction far faster than had previously been believed. Business investment has seen a significant turnaround, although activity remains well below pre-Pandemic levels.
There is continued discussion around interest rates with negative rates not being currently considered although there remain pockets of concern around the Fed’s new inflation policy. The Fed is not willing to accept very high or persistently high inflation without advance guidance or acting.
The dollar remains pressured on several fronts, and the index fell to a low of 96.56 yesterday, closing at 93.62. With analysts predicting new lows following a Biden victory, this is based on the Democrat Party’s record on public spending while among traders, the jury is still out.
Activity and new cases moving in opposite directions
In a more joined up economy, it would mean that support, job creation and back to work schemes would be initiated but this is being left to national Governments with little being done to stop any flow of economic migrants taking place which exacerbates the issue in the worst hit places.
The role of the pandemic in unemployment is being likened to how banks reacted at the time of the financial crisis and highlights deficiencies in the workings of the largest individual market in the western world.
The deficiencies in reporting unemployment data mean that the actual current rate of employment Eurozone-wide could be as much as 5% higher than has been reported officially.
The pace of the recovery is slowing and although Q3 will show a significant recovery, activity, as it is in the U.S., is well below pre-Pandemic levels.
The ECB is continuing to be rumoured to be considering an increase to its emergency bond buying programme, but it faces three significant hurdles.
The individual Central Bank Heads who make up the Governing Council are prone to a lack of consideration for the whole, often considering local issues as paramount.
The ability of the ECB to make decisions is hampered by the unwieldy nature of the decision-making process and this leads to an inability to react to situations that develop between meetings.
It is time that the ECB adopted the Fed’s policy of having a far smaller group that changes regularly and represents the whole.
The euro is benefitting from the dollar’s current weakness. It rose to a high of 1.1781, yesterday, cloning at .1763.
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.”