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FX

Near-term focus on US Elections and Fiscal Stimulus remains

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  • USD: There are 40 days to go until the US election and fiscal stimulus also remains in focus. Democrat and Republican lawmakers continue to talk about the need for a new stimulus bill, despite focus on the Supreme Court, but there is no sign progress is being made on coming to a bipartisan agreement.

 

  • USD: Continuing and initial jobless claims were slightly above consensus but were not particularly concerning. During the week of September 12, seasonally adjusted continuing claims dropped by 166k to 12.6 million. Similarly, non-seasonally adjusted continuing claims were lower by 176k to 12.2 million. Meanwhile, initial claims (seasonally adjusted) are slightly higher at 870k during the week of Sep 19, after a steeper decline of 30k on the prior week. Despite the slightly higher-than-consensus reading, the sustained downtrend in weekly continuing jobless claims points to continued strong rehiring.

 

  • USD: New home sales at 1,011k (annualized) in August were above consensus and Citi analysts’ projections for about 890k and reached the highest level since September 2006. Low interest rates, substantial savings, pent-up demand, and some individuals working from home have created an almost ideal scenario for the surging housing activity. While activity may cool from the current rapid pace, Citi analysts see potential for sustained strength in the sector.

 

  • USD: Federal Reserve Chairman Jerome Powell concluded three days of Congressional testimony, speaking to the Senate Banking Committee, along with Treasury Secretary Steven Mnuchin, delivering a quarterly report on the CARES Act. Powell noted that many economic indicators showed “marked improvement” but the conditions in the employment market and overall economic activity remain well below their pre-pandemic levels. Powell also continued to stress the importance of policy actions taken on all levels of the government, suggesting fiscal relief remains a key complement to the Federal Reserve’s monetary extraordinary measures in combating the recovery from the pandemic's disruption. They also provided an update on the $600 billion Central Bank's Main Street Lending Program, which has seen a slow start, while reiterating that the Fed will provide support to the economy “for as long as it takes.”

 

  • GBP: Reductions in labour market support. UK Chancellor Sunak announced a wage subsidy program was announced that will replace the furlough scheme set to expire soon (where the government pays up to 80% of workers’ wages). The new job support scheme means that those working at least 33% of normal hours will receive 2/3 of any lost income, with employers and the government each, respectively, making up a third of the loss. The government also announced that the Self-Employment Insurance Support Scheme will be extended, covering 20% of average monthly trading profits. Together, these measures amount to roughly £4bn in additional spending. Given the cut in support, Citi analysts think that many furloughed workers are now likely lose their jobs and unemployment may increase sharply from here. Citi analysts expect at least another £10bn in support through the rest of the fiscal year – with another fiscal statement likely before the end of 2020.

 

  • EUR: Following the previous day’s PMIs, Germany IFO has come in slightly softer than expectations. Business Climate Index printed at 93.4 (consensus: 93.8, Citi: 95.5), while the index’s expectations component came in at 97.7 (consensus: 98.0, Citi: 99.0). This still represents an increase for September, and shows that Germany's economic recovery remains on track. However, with COVID-19 infections rising again in Europe and many parts of the world, and governments tightening the restrictions on people’s mobility again, Citi analysts cannot rule out new setbacks for German business confidence in the coming months, and by extension for the investment outlook. Germany’s 2021 draft budget also did not provide the positive catalyst Citi analysts had expected and central banks seem to be in wait-and-see mode. The biggest near-term upside risk could be a break-through towards a Covid-19 vaccine.

 

  • CHF: No surprises from the Swiss National Bank (SNB) as rates and FX guidance were unchanged. The policy rate was left unchanged at -0.75% and the assessment of the Franc at “highly valued”, as expected. The SNB remain “willing to intervene more strongly” and will publish FX intervention data quarterly rather than annually.

 

  • MYR: MYR has seen a ramp up in political tensions and instability following the previous day’s announcement by opposition leader Anwar Ibrahim, who declared that he had enough of a majority to unseat incumbent PM Muhyiddin. As for next steps, Anwar will need the King's approval to replace current PM Muhyiddin. A date is currently unknown but the risk of a snap election is non-negligible. Anwar would need 112 seats to take power out of 222 lawmakers.

This is an extract from the Daily Currency Update, dated September 25, 2020. Please approach a Citigold Relationship Manager if you would like more information.

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