Covid could unsettle the markets

GBP

Yesterday was a quiet day for GBP, one point to note is that there are early signs that markets are starting to get ever so slightly twitchy over an increase in Covid cases. Whilst there is nothing to suggest that the UK is going to follow some European countries lead, any hint at imposing restrictions to curb infections will have a negative effect on the market.

The argument between the UK and France continued over fishing yesterday, with French PM Castex insisting that the UK respected the post Brexit agreements as it fully leaves the EU. The only news on the docket for GBP today is the UK business confidence data which will be closely watched by the Bank of England.

EUR

Further concerns around Coronavirus hampered any EUR recovery that looked on the cards early Monday. Whilst Austria is imposing harsh lockdown conditions, they only represent c. 3.1% of the Eurozone’s GDP – if Germany were to consider much stricter conditions the would cause significant concern as they represent c. 30% of the Zone’s GDP.

Despite this, the effects of these Covid restrictions will have less of an impact than previous lockdowns with longer-term growth remaining positive.

USD

The Dollar strengthened yesterday on the news that Fed Chair Powell was going to receive President Biden’s nomination for a second term. This public backing, combined with the view that Powell’s monetary policy will be more restrictive than his main competitor, Vice-Chair Brainard, meant dollar strengthened. By nominating Powell, Biden removed any uncertainty in the markets as to who may be the next chair.

Underlying inflation concerns increased speculation that the speed of tightening monetary policy would pick up, which also served to support the dollar. Biden is giving a speech today in which he is expected to deliver remarks on the economy, but unless something very unexpected gets said it should not have too much of an effect on the market.