RedFX: UK GDP at -19.8%, USD unfazed by 1st debate
GBP: A volatile day yesterday as BoE Governor Bailey spoke. GBP had been strong for 48 hours before, but sold-off into his speech, and remained at lower levels (GBP/USD at 1.2850 & GBP/EUR at 1.0950)
Key quotes:
Latest COVID restrictions are not comparable in economic effect with what we saw earlier this year
UK economic activity in Q3 probably 7-10% lower than it was pre-COVID
BoE is not out of ammunition on QE, can also use forward guidance
Would need to see quite a strong downturn to get a negative figure for Q4 GDP growth
Negative interest rates are in the BoE's toolbox, have not reached judgement on whether or when to use them
Evidence on negative rates is a mixed bag
UK GDP data this morning showed a Q2 reading of -19.8%, a figure that was expected at -20.4%. Despite the actual number being better than anticipated, GBP was relatively unaffected in early morning trading. The annualised GDP number for 2020 remains at -21.5% for the UK.
BoE member Haldane this morning was seen echoing Bailey’s comments above - he speaks again on Thursday afternoon.
EUR: Lots of data, speeches and meetings this week – Thursday & Friday is the EU leaders Summit, postponed from last week, and Brexit will be on the cards!
Friday morning Inflation data is expected to be benign, again, but we are always watching for evidence of QE working, which it hasn’t been! The € has suffered as USD demand has returned, EUR/USD at 1.1750 is at the lower end of the 3mnth range.
USD: Wednesday afternoon’s 2nd Quarter GDP data will be closely watched to see the actual data for the lockdown period in the US – it is expected to show a 31.7% decline!!!
Last nights Presidential debate was anything but Presidential, with descriptions ranging from “scrappy” to “fiery” and “fractious” – modern-day politics is a long way from the reasoned, consider debates of yesteryear.
The USD was relatively unfazed, but looks slightly weaker afterwards. A contested result is likely to be USD-negative.
China-US trade tensions don’t seem to be disappearing anytime soon, but they show a classic Trump tactic. Trump’s style is to demand something drastic and headline-grabbing at Stage1, but ‘The Deal’ usually ends in some form of compromise (Tik-Tok being a prime example, but the previous tariff wars have all seen significant concessions from his initial demands). The FX market is now wise to this, and despite continuing tensions, the FX market is no longer over-reacting to headlines, but digesting the reality.
Friday – key employment data in the afternoon will close out a hectic week for currencies, with US employers expected to add 850,000 jobs for the month of September as re-hiring post-Covid begins.
Quote of the night “I think that the country would be better served if we allowed both people to speak with fewer interruptions. I’m appealing to you, sir, to do that,” – Chris Wallace, moderator of the 1st Presidential debate of 2020, addressing the President of the USA.