With new Covid-19 cases resurging in the United Kingdom, the Prime Minister has announced a 4-week nationwide lockdown affecting the GBP/USD.
The GBP/USD pair saw a gap down on Monday after the announcement by UK PM Boris Johnson for a one-month lockdown, though the pair regained its losses on Tuesday.
4-Week Lockdown in the United Kingdom
The GBP/USD currency rate has gained support at 1.28 levels yet again. The British Pound has climbed back to 1.30 levels during trading hours on Tuesday. Trading continues to move back and forth at this level for the GBP/USD currency pair. Despite the lockdown, the Sterling is powering ahead with strength. A stimulus package expected in the United States is strengthening the Pound.
The British Pound to the US Dollar started the week with a major sell-off but managed to recover to 1.30 levels on Tuesday, 3 Nov.
The Pound has moved into the negative zone against its major rivals this week after the second lockdown was introduced.
After the UK saw 1 million coronavirus affected cases, the decision to bring in lockdown has come into effect. Support measures are increasing to protect citizens.
PM Johnson says, “I am truly, truly sorry” for the decision, as it affects businesses. “People have to stay at home”, he urges. People are asked to go out only for essential shopping.
One of the sticking points on the Brexit issue is fisheries. As talks are progressing between the UK and EU negotiators, the Pound has been relatively strong. But, there are reports of disagreements that keep dampening the progress in talks. But, currently, the Covid-19 resurgence is causing more concern to authorities. Last-minute talks on Brexit keeps the GBP from further decline.
Key data to watch this week is the PMI numbers from the United States and the European Union.
Monetary Policy Meeting on Thursday
Bank of England is having its monetary policy meeting later this week. The quarterly Monetary Policy Report will be published on Thursday. During this meeting, the Bank of England Governor, Andrew Bailey will be forced into taking action on important policies. Expectations about negative interest rate announcements are on the increase. The recent month-long lockdown may trigger sub-zero rates, say experts. The pound is expected to react sharply if negative rates are announced. The sterling will be weighed down by negative interest rates.
Bond-buying of shares is another option expected by top officials.
PM Johnson has further announced that the furlough scheme will be extended. Workers are paid to stay at home during the pandemic season by the furlough scheme. The extension may bring in further quantitative easing in the economy. If quantitative easing takes place, it would be a positive trigger for the Sterling.
The House of Commons will approve the decision of the lockdown on Wednesday, and the lockdown may come into effect on Thursday after approval.
US Dollar Index
Election Day on 3 Nov
The US election is an important political event that has a big impact on the Forex market. If Biden wins, the fiscal stimulus would weigh down the greenback. If President Donald Trump is re-elected, it is expected to strengthen the dollar.
Fear of a contested election is now raised. Will the election result be contested or would it be accepted by leaders? This concern is giving a boost to the US Dollar.
The Euro has dropped to low levels since 28 Sept. With the elections in the United States, investors are rushing to give up their investment and keep it safe. However, Tuesday saw a rebound, as the EUR/USD currency pair saw a huge rally to touch 1.1730 levels.
The Euro to the US Dollar Index has gained support at 1.1630 levels. The Manufacturing PM has increased to 54.8 in October, while it was 53.7 in September. The Services PMI report is expected on Wednesday, which is expected to show a decline to 46.2 in October, while it was 48 in September.
It remains to be seen if the lockdown in the Eurozone can contain the coronavirus infection surge.
Eurozone Enters New Lockdown
The EUR/GBP has gone below the 0.900 level, touching an eight-week low. The increase in Covid-19 cases in the European region is causing panic in leaders. The Euro saw a huge drop as leaders look at rescue measures to save the health of people during the lockdown. New lockdowns are announced in France and Germany too. Spain is also facing a downturn.
However, the European Central Bank has announced further stimulus measures to be introduced in December. The Euro is under selling pressure with such announcements from the ECB on Thursday.
A break below the psychological level of 0.9000 for the EUR/GBP currency pair will bring bearish pressure to the currency pair. It is expected to move towards 0.8910 level supports or to 0.8865 levels, which is its September lows. However, if it moves beyond 0.9100, it may move further up to 0.9150 and 0.9215 levels.