The sterling is generally down today as the UK unemployment rate rose more than expected and parts of the country return to lockdown. Besides, it looks like there will be no progress on Brexit negotiations ahead of the EU summit later this week.
The Australian dollar is the second weakest as China tries to stop importing coal into the country. The New Zealand dollar is currently the strongest, mainly due to cross-buying against the Australian dollar. Meanwhile, the Canadian dollar and the US dollar are next in strength.
The focus will be on the development of US equity markets as they try to hit a new record level, hindered by the suspension of J&J research on a coronavirus vaccine.
Although the euro is in a positive medium and long term, we see strong pressure on the single currency at the moment. European traders have become more risk-averse after economic data from Germany and Europe showed economic sentiment deteriorated in October (according to the ZEW). At the same time, inflation data in Germany showed deflation again: consumer prices fell 0.4% over the next month.
The ECB will not watch deflation forever and may already be planning further monetary easing. However, changes will not happen immediately, and further quantitative easing will become the ECB’s preferred weapon.
In the short term, however, worsening risk sentiment and additional pressure as coronavirus cases continue to rise in Europe are weighing heavily on the euro. Investors also fear the euro area unemployment rate will rise again after they saw the UK unemployment rate rise to 4.5% in the three months to August, up from 4.1% in the previous three months.
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