Pound Pressured by Fears of Economic Slowdown, US Dollar Soars on Safe-Haven Demand

GBP/EUR – Fears of Fresh Covid-19 Restrictions Weigh on Pound Demand

A sharp rise in UK Covid-19 cases put the Pound under renewed pressure today, with investors wary of the potential for another national lockdown.

In the wake of a marked decline in the CBI industrial trends index worries, over the health of the UK retail sector had already picked up.

The prospect of further economic disruption encouraged bets of a weakening GDP figures to come, with retail sales already showing signs of falling at the start of the fourth quarter.

Unless ongoing Brexit trade talks between the UK and EU can yield signs of progress in the near future, a sense of economic anxiety looks set to keep the Pound biased to the downside.


GBP/USD – Pound Stumbles on Underwhelming UK PMIs

Confidence in the UK’s economic outlook fell following October’s manufacturing and services PMIs despite both remaining in expansion territory.

Investors were more concerned to find that the services PMI had seen an unexpectedly sharp loss of momentum, dipping from 56.1 to 52.3, closer to stagnation.

As long as evidence continues to point towards the UK economy struggling to maintain its recovery momentum, this may limit the potential for GBP/USD exchange rate gains.

Amid a lack of Brexit talks updates, Sterling sentiment could remain under pressure as coronavirus restrictions tighten ahead of next week’s Bank of England (BoE) interest rate decision and quantitative easing announcement.


USD/GBP – US Fiscal Stimulus Failure Boosts US Dollar

The US Dollar soared as US officials failed to agree a fiscal stimulus package ahead of the upcoming presidential election.

Market sentiment soured sharply after Republicans and Democrats conceded they had failed to agree a stimulus package before the US election next week.

This boosted the safe-haven appeal of the ‘Greenback’ which had already been lifted by a sell-off in equity markets and increasing concern over the coronavirus resurgence.

Growing anticipation over the election result could see USD exchange rates increasingly volatile in the days ahead as markets brace against the possibility of a contested presidential election result.


EUR/USD – Soft Eurozone Services PMI Fuels Euro Weakness

As the Eurozone services PMI proved weaker than anticipated, sliding deeper into a state of contraction at 46.2, this weighed heavily on the Euro.

With the service sector decline worsening at the start of the fourth quarter, this pushed the composite PMI down into negative territory as well.

Confidence in the outlook of the Eurozone economy looks set to diminish further as France and Germany both look set to announce fresh, tighter Covid-19 restrictions in response to rising infections.

Even if the flash third quarter Eurozone gross domestic product shows strong growth on the quarter, this may not be enough to ease fears of a potential double-dip recession, leaving EUR exchange rates vulnerable.

Louisa Heath

Contact Louisa Heath