Stock markets retreat sending Sterling lower
The Pound has had a little wobble today due to factors outside it's control. £-€ rates are currently down 0.5% after a supportive 5-days trading and the £-$ is down 0.4%. Firstly, the $ gained in strength as Fed Chair Powell was picked for a second term. This gives stability to the $ and keeps the US on track for a rate rise early next year.
Global stocks are down (£ has been following the stock market performance since the pandemic began) as investors monitor the current Covid-19 situation in the Euro-Zone. A lot of data-houses are predicting the Pound to gain in strength against the Euro as national lockdowns happen in the bloc, but for now things have turned the other way. We can see this scenario playing out too, but it would take a much larger country (like Germany) to lockdown for this to occur.
Three countries so far have renewed restrictions, with Austria in a full lockdown for 10-20 days. As Austria only count for 3% of the Euro-Zone's GDP, there won't be much of a dent. However, someone like Germany who count for 30% of GDP would cause a problem. Chancellor Merkel has recently said the 'latest surge is worse than anything experienced before' and has called for tighter restrictions. So the Pound looks set to capitalize in this regard.
The latest PMI data out of the UK has given the 'green-light' for a December rate hike at the BoE. Despite price pressures, consumer demand was robust and this will encourage the MPC next month. We remain very cautious of this happening though after last month's vote and meeting, plus only once in the last 45-years have rates been raised before Christmas. However, it wouldn't be a surprise either as policy has to change in the coming months and everything else is pointing to a inbound rate hike. This leaves the Pound in a poised position for the weeks ahead.