GBP/USD: Coronavirus and elections headlines to have a growing impact

GBP/USD has struggled to advance amid minimal progress in Brexit and US fiscal stimulus talks. The US presidential debate and the UK's handling of coronavirus stand out this week, yet several economic figures could also steal the show, FXStreet’s Analyst Yohay Elam reports.

Key quotes

“Brexit deliberations continue in the background, with any headlines about progress set to push sterling higher, while disagreements could pound the pound. The next deadline is the end of the month, however, this can-kicking exercise could be extended until the only hard stop – year-end, when the transition expires.” 

“Coronavirus statistics and decisions about lockdowns may take center stage. Several scientists suggest announcing a nationwide ‘circuit-breaker’ lockdown. If Johnson announces a ‘circuit-breaking’ move, it could break down the pound. Keeping lockdowns local – and especially keeping London out of Tier Three – would allow some breathing space for sterling.”

“Several members of the Bank of England, including Governor Andrew Bailey, will speak during the week. Markets are currently dismissing the probability of a negative interest rate, but if lockdowns are coming, the BoE may accelerate preparations for such a move, weighing on the pound.” 

“For September, inflation figures are set to show a recovery from 0.9% to 1.3% in the headline Consumer Price Index. If CPI nears 2%, it would ease pressure from the BoE and could boost the pound. Markit's preliminary purchasing managers' indexes for October are projected to show a minor decrease in confidence, albeit still pointing to growth – above 50 points. Any decline below that threshold could weigh on the pound.”

“The election campaign is entering high gear with the second and last presidential debate between Trump and Biden. The debate is held on Thursday, 12 days ahead of the only poll that matters, and as millions have already sent their mail-in ballots or voted early. Nevertheless, an upbeat performance by Trump could shake the race.”

“If Democrats take control of the upper house, they could quickly pass a generous stimulus bill that markets want. That may boost stocks and weigh on the dollar. Conversely, if Trump and Republicans recover, the safe-haven greenback could rise.” 

“Fiscal stimulus talks will likely continue, but with every day that passes toward the vote, the chances are diminishing. A miracle deal could boost stocks and weigh on the dollar, while a breakup of talks is likely to cause only a shortlived advance in the greenback.”