Currency update Currencies are in for a stormy December as uncertainty and change dominates everywhere. In the US, Joe Biden is likely to stimulate a dollar weakening set of fiscal policies, and concern over the labour market and household spending could add to this. For Sterling, Brexit continues [...]
With US elections next week, escalating Covid cases, and stock markets taking a downward turn in EUI/UK as a consequence currency is remarkably stable. The threat of lockdowns everywhere will impact the effected currency for the region, but who will/won’t lock down, when and for how long remains the uncertain element removing the ability for markets to predict outcomes. The unfinished Brexit business does not help to give markets any clear direction. Otherwise China will miss their trade target with the USA in more or less every category, and of course the Eastern economies are struggling under decreased demand from the West.
A firm sentiment now rests on nearly all markets, after the gradual drift down experienced over the first few months of 2020. Generally, harvests, yields, qualities, supply chain problems, short covering is all coming together to create a firm picture for this season. Combined with a lack of confidence in any particular currency, and global Covid 19 issues, we strongly suggest cover your requirements now. In your domestic currency.
US$ weakness dominates the global FX markets at present, and buyers should take advantage of this opportunity. There are plenty of storm clouds on the horizon, and of course the small matter of Brexit 120 days away. Apart from this the various global chancelleries are beginning to consider how to pay for the COVID-19 pandemic, and restructure economies accordingly. It is an unpredictable zone, so whilst times are good in UK/EU zone on currency, don’t miss the opportunity.
The markets are really focused on US news, which currently is all poor. From escalating virus cases, to largest ever quarterly GDP decline, squabbles over the forth coming election, poor leadership, and continuing weak jobless claims. All in all it presents an opportunity for EU/UK buyers of US$ based commodities to snap up some bargains. The €/£ has remained remarkably stable whilst this has all been going on, awaiting some guidance on the Brexit negotiations and what will or will not change on 1st January 2021.
It's surprising to see all currencies unchanged on the month, despite some strength in the pound during June. There is a lot of activity amongst Chancellors and Central Banks to stimulate the various economies out of the COVID scenario, but potentially the impact will be relatively neutral as all will purely look to stimulate their respective economy. Perhaps more concerning is will there be a significant second wave somewhere in the world? The hang over of financial stimulus is also going to be a major concern and how economies deal with this. Will we enter a period of inflation or deflation, as some EU adviser fear?
This month the focus has been on who is providing the largest overall stimulus to their respective economies and how are we all going to pay for it? With a global recession upon us and no one really knows the shape of things to come. Rising unemployment throughout the world will impact on demand. Of course, the other issues are negative interest rates, not seen by many of us before and the impact they have on banks and the financial sector particularly, as well as on us as individuals. Finally, the growing antagonism between China and the USA, and to some extent the rest of the world will have an impact, increasing in intensity as we gradually lift out of this situation into the new world order.
Who knows! The markets will daily interpret the news stories and respond as they see fit as to which region is responding or recovering the best/fastest. All are suffering and government spending is supporting each economy. The recovery will depend on both domestic and international demand.
In the UK it is the end of the financial year, and it has been a month of huge financial stimulus due to COVID-19, and perhaps to some degree it has worked since the FX rates today are not too far off the end of February. The major concern going forward, and it is perhaps too early to be concerned is the impact on the US$ of the huge financial stimulus, plus the anticipated rise in the unemployment rate is going to put their economy under huge pressure.
Who knows what is in store for the global economy as the Covid-19 virus gathers momentum outside China. For sure the expectation is for governmental stimulus to try and stave off a global recession, not seen since 2008. But on top of this we have unrest in the Turkey/Syria region, EU/UK and US/UK trade talks commencing, a near 15% drop in stock markets globally and the oil price dropping below $50/barrel as demand drops in China.