UK told to "stop playing games" / Big week for USD speeches
Key points from Governor Bailey’s speech this morning. This is AHEAD of Johnson’s COBRA meeting later this. With Bailey due to speak again on Thursday afternoon, this marks an important week for GBP.
GBP Negative:
Last week's statement on negative rates should be no surprise
Watching Brexit developments very carefully
Unemployment is higher than its reported number
GBP Positive:
UK recovery has been quite rapid and quite substantial
We will do everything we can to support the UK economy
We are going to need a lot of evidence before we start to turn policy around
Bailey managed to mention everything in this planned speech, and after initial GBP weakness (GBP/EUR under 1.0900 and GBP/USD under 1.2800), we rebounded to yesterday’s levels.
What does this mean?
The UK policy (which seems to be an ever-changing landscape) towards Covid, and the subsequent effects on the UK economy will be very closely watched. Yesterday’s speeches cleared showed the concerns regarding exponential growth of Covid, and the strain on ICU beds in the UK – new restrictions are in place, but the government’s reluctance to enter a new national lock-down is clear. However, because the UK government has flip-flopped many times this year, markets are not convinced this reluctance will endure.
Brexit: When Germany’s Finance Minister (Michael Roth) says “Please, London, stop the games, time is running out”, you know this is not a trivial matter. EU ministers meet in Brussels today to discuss Brexit, then on Friday for a ‘special’ ‘Leaders Summit’ and the next UK-EUR Joint Committee meeting will start on 28th Sep.
GBP/USD resistance keeps kicking in at 1.2750, and lower, at 1.2717 (2mth lows), and EUR/GBP stalls at 1.08 (0.9260) and 1.0840 (0.9225).
USD: A big week ahead – Fed Chair Powell appears 3 times in Washington, giving speeches regarding policy and the economy. USD is strengthening again, as he is expected to fully commit to do ‘everything necessary’ to support the US economy.
EUR: Plenty of data tomorrow morning including German inflation and Eurozone PMIs.
AUD: Under pressure this morning after Deputy Governor Debelle’s comment that a lower exchange rate would definitely be beneficial for the economy,and even went as far as to mention negative rates. Commodity currencies also suffering from USD strength (due to safe-haven flows as the market worries about Covid-19 infection levels continuing unabated). Tomorrow’s Retail Sales will be another market mover.