hese moves were, however, modest in size and did not significantly change the trading patterns of the past few weeks. The euro is back in the middle of the trading range that it has held since August against the US dollar, bouncing around between the 1.16 and 1.19 levels. The biggest losers were Central European currencies, down on fears that those countries are being hit particularly hard by the second wave of the COVID pandemic.

Markets are increasingly focused on the US election in the first week of November. The consensus view seems to be that a Democratic sweep (taking the presidency and the Senate) would be a positive for risk assets and negative for the US dollar. Friday’s release of the Eurozone flash PMI indicators of business activity for October is the main data event of the week. The recent proliferation of local lockdowns introduces some downside risks here, and a serious disappointment could bring into focus further ECB easing measures.

GBP

As we expected, Brexit negotiations stalled last week but Boris Johnson backed away from his threat to walk away, although he did warn Britain to prepare for the possibility of a ‘no deal’ Brexit. Sterling moved largely in line with the euro, so markets clearly still expect some kind of modest deal to be reached, as do we.

Not a lot of marking moving data will be released this week, so expect the focus to remain on the UK COVID numbers and the possibility of a new lockdown, which could potentially hit the pound hard.

EUR

The deteriorating COVID numbers in most of the Eurozone and the reimposition of local lockdowns hurt euro sentiment last week.

The PMI numbers to be published Friday take on additional importance. They will be the first measure of the economic impact of these partial lockdowns and restrictive measures. A drop in the composite number below the 50 level that separates expansion from contraction would put added pressure on the ECB to prepare further easing measures, and we would expect the euro to sell-off in that context.