Investors continue to keep Brexit in focus. Bank of England says it is ready for negative rates, and GBP/USD reacts though investors prioritize Brexit.
Johnson & Johnson announces that it has halted its study on its new vaccine. One of the participants had come up with an unexplained illness. It has brought the experiment to a halt. It has brought fresh demand for the greenback.
President Trump resumes campaign after recovering from COVID-19 illness. A US Coronavirus stimulus package remains doubtful before the elections.
GBP/USD
British Pound Hovers Below 1.30 Levels
The Sterling continues to hover around the 1.30 level. The British pound against the greenback finds the psychological barrier, a tough level to break. Brexit news, keeps investors tense about the outcome.
The week started on a positive note on Monday, as the GBP/USD currency pair traded above the 1.13 level. Traders are hopeful that the UK and EU deal will find a conclusive end. The Eurozone wants the deal to conclude by the beginning of November.
On Tuesday, the GBP/USD currency pair went sliding below the 1.300 levels. The currency pair has been volatile with Brexit news expectations. Though BOE’s Governor Bailey has talked about negative interest rates, the currency remains worried about Brexit news.
Michael Roth, Germany’s Europe Minister, says that the EU-UK talks have not much progress on substance.
The British Pound against the USD has support at 1.2930 levels and again at 1.270 levels. On the upside, if it moves past Monday’s highs, it will see a strong climb upwards.
Bank of England governor states that the bank has an open mind about pushing interest rates in the negative territory. BoE has asked opinions from other banks if they are ready to take interest rates to zero or sub-zero. “We should consider negative interest rates”, says Bank of England Governor Andrew Bailey in his speech on Monday.
Interest rates were cut to 0.1% when the Covid-19 pandemic began. The European Central Bank has deployed negative interest rates previously. Negative rates should become a part of the bank’s “tool kit”, states Bailey. He has pointed to the Bank of Japan and the ECB, which have introduced used negative rates, even earlier. They are offered to large corporates, he said. “It will limit the impact of the policy”, says Bailey, if mortgage lenders do not adopt the policy. Experts say that negative interest rates may be expected next spring.
The Unemployment Rate in the UK continues to worsen in the country. It has increased to 4.5% in August, while it was at 4.1% in July. The data has been worse than the predicted 4.3%. New containment measures are introduced to control the coronavirus infections that are resurging. This will impact the economy and job conditions further, feel experts.
Sam Woods, the Deputy Governor of Prudential regulation and CEO of Prudential Regulation Authority says, “Negative policy rate will have wide implications of a firm’s business and its customers”.
US Dollar Index
Political Uncertainty Strength USD
The US Dollar Index is strong against other major currencies. It is testing the significant 93 levels. With the nearest resistance level at the 93.30 level, it may gain further upside momentum. Though the dollar index started the week on a negative note, it saw some gains coming in, putting it above the 93.00 marks.
President Trump was infected with COVID-19 illness in early October. After his recovery, the president continues his campaign. Political uncertainty ahead of elections in November continues to drive the forex market. Another stimulus package is on the cards, and it puts pressure on the US Dollar Index. The “lower for longer” stance continues to affect the Dollar Index. US markets remained closed due to a local holiday.
EUR/USD
Eurozone Affected By Resurging Coronavirus Cases
The Euro is trading below 1.18 levels. The resistance level at 1.1820 is a strong resistance level that the currency pair is unable to break. 1.1731 is a strong support level at which the EUR/USD currency pair is hovering on Tuesday. It has a cluster of supports at this level up to 1.1710 levels.
The strong US Dollar has weakened the Euro further. Coronavirus cases have resurged in various parts of the Eurozone. However, most European indexes have remained positive.
Investors will keep an eye on the ZEW Survey on the Eurozone. ZEW Economic Sentiment has come at 52.3, while it was at 73.9 previously. The German ZEW Economic sentiment is at 56.1 while it was at 77.4. It is much lower than the forecast of 74.1. The Economic Sentiment has deteriorated in the Eurozone, with the coronavirus taking the major blame. It has resurged, halting most European economies, which are already facing slow growth.
Asian Markets
In China, the Trade Balance shows a dismal figure of 258B, while it is was previously 417B. Market experts expected it to be 420B.
The Bank of Japan Governor Haruhiko Kuroda has assured investors that the central bank has sufficient policy measures to revive the economy. Inflation will remain in the negative for some time, he says.
