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COVID-19: Rising cases in UK concern for currency markets

Pound Sterling (GBP) continues to stumble over Brexit fears, as investors are left to consider whether the UK and the EU can reach a deal in time for the draft deal deadline in mid-November.

The British pound to US dollar (GBP/USD) exchange rate is currently trading at USD 1.32, while the British pound to euro (GBP/EUR) exchange rate retreated towards EUR 1.11.

It seems that further downside momentum is expected for pound Sterling as foreign exchange (FX) markets consider whether the latest Brexit remarks are a political bluff or cause for concern.

Presently it seems that a no-deal Brexit is being factored into pound Sterling (GBP) price action as the UK currency is trading lower against a host of major currencies, including the riskier  Australian dollar (AUD) and Canadian dollar (CAD).

If fears of a collapse in Brexit trade talks intensify, we expect pound-based exchange rates to slide further in global currency markets. With that being said, Brexit isn’t the only issue contributing to pound Sterling (GBP) underperformance as attention is also turning towards rising COVID-19 cases in the UK.

Although the pound (GBP) reacted positively to news of a vaccine being rolled out in December, health secretary Matt Hancock has since admitted that it will be very difficult to distribute throughout the UK once it becomes available.

UK Government guidelines on coronavirus

UK SCIENTIFIC ADVISERS DELIVER HARSH WARNING
ON RISING CORONAVIRUS CASES

According to the Scientific Advisory Group for Emergencies (SAGE) member, Prof John Edmunds, COVID-19 cases in England are accelerating exponentially, which his colleague, Deputy Chief Medical Officer, Prof Jonathan Van Tam, said is of “great concern”.

After 33,470 daily cases were announced this week, the highest daily figures reported so far, health experts have attributed the increase to mass testing which was not available during the first wave.

Prof Van Tam has implied that the British public cannot afford to relax. He added: “Now is the time for us to re-engage, and to realise that this is a continuing threat to us.”

With cases rising, the UK is currently under a second national lockdown which could further reduce demand for the Brexit-battered pound (GBP).

There are already concerns about the UK’s economic outlook as hundreds were made redundant following the wind up of Chancellor Rishi Sunak’s furlough scheme, which has since been reintroduced and extended until March 2021.

South African Rand currency

GBP/ZAR PLUMMETS AFTER DISAPPOINTING UK GDP

Recent UK GDP data has revealed a quarterly growth of 15.5%, which has fallen short of the 15.8% that economists forecast. The underwhelming data has caused the pound (GBP) to lose momentum against the South African Rand (ZAR), with the British pound to South African rand (GBP/ZAR) exchange rate currently standing at ZAR 20.50.

The South African Rand (ZAR), however, is not without its struggles as September revealed a deterioration for figures within South Africa’s mining industry, creating cautiousness amongst investors.

On a more positive note, South Africa’s unemployment figures for Q3 appear to have improved at 30.8% compared to the 33.4% which was initially forecast.

It’s uncertain whether pound Sterling (GBP) will be able to edge higher, given that Brexit is back in the spotlight, particularly as tensions between the UK and the EU are flaring ahead of Prime Minister Boris Johnson’s looming draft deal deadline.

Australian Dollars

 

GBP/AUD THREATENED BY NO-DEAL BREXIT FEARS

Despite the risk-off market mood, pound Sterling (GBP) recovery attempts against high beta currencies such as the Australian dollar (AUD) have been limited due to the latest Brexit developments.

Despite rising speculation about the Reserve Bank of Australia (RBA) becoming more dovish on Australia’s economic outlook, investors appear to be buying the Aussie dollar which is triggering further losses in the British pound to Australian dollar (GBP/AUD) exchange rate.

Against the Australian dollar (AUD), British pound Sterling (GBP) is trading at AUD 1.81, and the currency pair could continue to engage in a downward trend if no-deal Brexit fears continue to hit the headlines.

However, the Australian dollar’s (AUD) progress amid vaccine revelations has been limited, mainly because other countries that have been more heavily impacted by COVID-19 will benefit more significantly.

BREXIT PRESSURES MOUNTING ON GBP/CAD

The Canadian dollar (CAD) has traded higher against many of its peers due to an increase in oil prices, largely helped by COVID-19 vaccine news, seeing a 13% rise this week.

Against the US dollar (USD), the Canadian dollar (CAD) has remained around the USD 0.76 level this week, and the currency pair is likely to remain in limbo if Canada’s coronavirus infections continue to rise.

The British pound to Canadian dollar (GBP/CAD) exchange rate also appears to be in a range bound rut, albeit at lower levels due to Brexit trade talks, with the currency pair trading lower at CAD 1.73.

BoC’s decision to leave interest rates as is has provided some support for the Canadian dollar (CAD) but the chance of a no-deal Brexit will likely accelerate declines in GBP/CAD.

Not only have UK negotiators doubled down behind red lines but UK Prime Minister Boris Johnson threatened to walk away from a deal on October 15th if the EU does not change its stance on state aid and fisheries, setting the stage for a hard Brexit.

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