IFX Market Report: Tuesday 22nd September 2020

The pound fell to a one-week low against a broadly stronger US dollar as serious concerns in the banking sector caused a fall in global risk appetite whilst the UK economy faced the repercussions of a potential second national lockdown to help control the recent spike in COVID-19 cases.

The UK Government’s chief medical officer and chief scientific advisor in a joint address yesterday, painted a grim picture of up to 50,000 new cases and 200 deaths per day in the UK if new restrictions were not put in place immediately.

Investors are concerned a second lockdown could break an already fragile economy still recovering from the effects of the first lockdown in the Spring. The travel and hospitality sectors are likely to be hit the hardest.

GBPUSD started the week at 1.2948 and fell for the majority of the day, dropping over a cent to 1.2840 by 9.30am and eventually closing at 1.2797, the lowest since the 14th Sep.

GBPEUR opened at 1.0916 and fell below 1.09 as the session got under way, however unlike GBPUSD, the pound was able to limit the losses and closed only marginally down on the day at 1.0903.

Given its perceived safe haven status, the US dollar continued to benefit from the run of investor risk aversion and a report that many big name banks were involved in facilitating money laundering over the last 20 years compounded investor sentiment further.

The dollar index which tracks the dollar’s strength against a basket of other currencies rose over 1% yesterday to reach 93.74, the highest it has been since the end of July.

Like the pound, the euro sustained big losses against the dollar. EURUSD opened at 1.1859 and dropped to a near 6-week low of 1.1739.

Dollar investors will be looking at US Federal Reserve Chair Jerome Powell’s appearance with Treasury Secretary Steven Mnuchin later today to see if they can break the deadlock to another round of fiscal stimulus. A failure to do so, with rising COVID cases across Europe will keep investors firmly in the ‘risk-off’ camp.

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