e noted last week that the looser virus restrictions in the US may lead to a modest outperformance of the US economy relative to its European continent. While that remains the case, investors are now focusing on the impact that these more sporadic measures are having on the rate of virus infection in the US. The seven-day moving average of cases rose to just below the 180k level last week and there are concerns that cases could hit fresh highs in the coming days given the bump expected following the Thanksgiving holiday.

With cases rising and the economy under increased pressure, there is now growing speculation that the Fed could inject more stimulus into the US when it next meets on 16th December. We should get a much better idea as to whether that will be the case when FOMC chair Jerome Powell speaks in front of Congress at his semi-annual testimony today and tomorrow. This will be very closely watched by investors so heightened volatility around his appearance is to be expected.

Sterling hits early-September highs on Brexit optimism

Amid the broad weakness witnessed in the dollar, sterling has had room for a move higher so far this week, eging up to its strongest position since early-September this morning. It has, however, since given up some of these gains at the time of writing. Currency traders are reacting positively to the improvements witnessed on the virus front in the UK. Case numbers have fallen to their lowest level since the beginning of October, with the UK’s test positive rate now below 6%, which is lower than the vast majority of the rest of Europe.

Investors are also continuing to bet in favour of a Brexit deal being secured in the next couple of weeks, with the avoidance of a ‘no deal’ now almost fully priced into the market, in our view. There do, however, still remain a number of key sticking points that are preventing an agreement, notably that surrounding fishing, governance rules and dispute resolution. Talks will inevitably go down to the last minute, so we may see a few market jitters should investors become wary that a ‘no deal’ remains even a remote possibility.