The pound is continuing to depreciate versus its peers, having lost more than 1% against the dollar so far this week. At a time when the mood of the markets appears to be tilting towards risk aversion, sterling is facing strong headwinds.
Prime Minister Boris Johnson is expected to announce new COVID-related restrictions to economic activity later today and the future of the post-Brexit relationship with Europe remains on a knife-edge, while increasingly loud noises coming from the Bank of England hint at the possibility of negative interest rates.
European share markets registered a slight rebound on Tuesday, following Monday’s sell-off, while US futures and Asian stocks kept on trading lower led by the financial sector. Even if there are now numerous bearish market drivers, rising Covid-19 numbers in several countries and uncertainty over further US fiscal stimulus are the most important ones in investors’ minds. Investors fear prolonged and renewed Covid-19 restrictions, especially in the UK and the rest of Europe, could lead to another sharply negative impact on demand in many sectors for the rest of the year, and this is strongly affecting this week’s market sentiment.
In addition, increasing market volatility is giving more opportunities to short-term traders but also kills market directionality and reduces clarity for mid to long-term investors. This situation is likely to continue as the US presidential election draws ever closer.
Today’s market agenda isn’t very busy, but most investors will have their eyes on Jerome Powell’s speech before members of the Congress later in the afternoon.