Sterling stumbles on sluggish numbers, COVID fears and lack of Brexit progress.

Thursday proved to be a difficult day for sterling as it continued to extend losses from Wednesday. The feel-good factor stemming from positive vaccine developments announced earlier in the week appeared to be waning as rising COVID numbers in Europe and the US provided a reminder of the long road ahead to recovery.

Growth figures out of the UK posted for the period between August and September showed the economy expanded by 1.1%., lower than the forecasted 1.5% consensus. The reading was made all the more disappointing given the period was unaffected by lockdown measures that have been in place both before and since.

Although the economy did grow by 15.5% compared to the previous quarter it is still 9.7% lower compared to where it was at the end of 2019. The UK is also posting the largest drop in GDP for 2020 compared to all of Germany, France, Italy, Spain and the US.

As the official death toll surpassed 50,000 coronavirus deaths on Wednesday the disappointing figures once again raise the question of whether the Bank of England will announce negative interest rates at some point in 2021 to combat any negative impact on the British economy. Rishi Sunak already announced yesterday that growth post-September will likely have slowed. Markets are currently pricing interest rates to go below zero as soon as June of next year.

It came as no surprise when Irish Prime Minister Michael Martin announced on Wednesday that Brexit negotiations were set to miss the latest deadline of mid-November. He followed this up yesterday with comments that the whole world was watching and gave specific reference to President-elect Joe Biden and his desire for a Brexit deal to be secured.

It is a relatively quiet day on the data front. Preliminary European growth figures are due out this morning and are expected to show a 12.7% increase from the prior quarter. Naturally, comparisons will be drawn between this and yesterday’s UK figures.

Elsewhere it will at interesting day at Number 10 Downing Street as Boris Johnson’s most senior advisor, Dominic Cummings, looks set to announce he will leave his role in January. This follows news yesterday that his ally and Director of Communications Lee Cain quit the PM’s office amid speculation of infighting. The exit of two well-known leave campaigners could bolster sentiment that Johnson is keen to get a deal done with Europe.

Economic Calendar

10:00Gross Domestic Product s.a. (QoQ)(Q3)12.70%12.70%
10:00Gross Domestic Product s.a. (YoY)(Q3)-4.30%-4.30%
10:00German Buba President Weidmann speech
12:00Fed's Williams speech
13:30Producer Price Index ex Food & Energy (YoY)(Oct)1.20%1.20%
14:00BoE's Tenreyro speech
15:00Michigan Consumer Sentiment Index(Nov)8281.8
16:00BoE's Governor Bailey speech

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