Market sentiment soured significantly on Monday and demand for the safe-haven US Dollar increased. First and foremost, high numbers of new COVID-19 infections and the fears of more strains challenging the economic recovery weigh heavy on market sentiment, naturally capping any significant gains for Sterling or Euro. The latest data shows that COVID-19 cases in the UK are up 5% in last week, with Britain recording a further 28,438 cases on Monday – up from the 26,750 recorded on Sunday. The Scientific Advisory Group for Emergencies (SAGE) have also noted that “a future new coronavirus variant capable of beating the protection given by current vaccines is ‘almost certain’ to emerge”. Britain aside, many fear that US COVID-19 cases may “jump to the 200,000 levels marked earlier in 2021”. Also, new cases in the Asia-Pacific are at multi-month highs despite most countries having very strict policies.
Also weighing on market sentiment is the possible negative ‘side-effects’ of Brexit. Former EU Brexit negotiator “Michel Barnier last week called for a five-year moratorium on all immigration into the EU — a move that would effectively ban British settlement and all others”. Barnier has claimed that the French are becoming increasingly “angry” with the number of immigrants wanting to come to France, only to then leave to cross borders to Great Britain. A record 10,050 migrants have made the journey across the Channel this year, surpassing 2020 annual record of 8,420 with ease. Barnier has claimed that the EU’s “immigration policy does not work in Europe” and must therefore be reconsidered.
Yesterday’s events in Afghanistan also contributed the markets ‘risk-off’ tone. The Taliban’s takeover of Kabul has exerted “an additional downside burden on the market’s risk appetite” due to uncertainty surrounding the country’s future. As the US, UK and others rush to leave the country, China and Russia are continuing their operations and hope to “see their influence increase dramatically in Afghanistan”.
GBPUSD has dropped off this morning after showing impressive resilience on Monday in difficult market conditions. Cable opened the week at 1.3843 and continued to rise on the day, finally finishing the session at 1.3858. Presently GBPUSD trades just above the 1.38 handle.
GBPEUR also caught a bit of upside on Monday. The pair opened at 1.1746 and closed at 1.1757.
EURUSD moved sideways on Monday as the pair showed little volatility. The pair started the session at 1.1789 and closed at 1.1787.
