GBP - British Pound
In the last week alone, Sterling has fallen almost 5% versus the US Dollar and 3% versus the Euro, with rhetoric from Prime Minister Boris Johnson suggesting a hard Brexit or a no deal Brexit could be the inevitable outcome to the 3 year chess match that has been the Brexit negotiations. The levels we are now trading at haven't been seen since March 25th in the case of GBPEUR and July 27th for GBPUSD.
The icing on the cake to Sterling's demise was the government's refusal to budge on the Internal Market Bill, which implemented, could be breaking some fundamental laws according to the European Union. They have given Johnson to the end of the month to amend the bill or suggest the UK will face some serious legal action which isn't exactly autonomous with a smooth and orderly Brexit plan.
With Biden's staunch stance to ensure that the UK honours the Good Friday Agreement in Northern Ireland discussed yesterday, US Speaker of the House, Nancy Pelosi, added timber to the fire by stating the US would not support a US-UK trade deal if Britain violates the EU withdrawal agreement.
With Covid cases beginning to rise, and trends following what we are seeing in more 'mature' covid countries like Italy and Spain, things aren't looking good for the UK or it's economy, clearly reflected by the lack of confidence being shown in it's currency. Though we see the release of UK industrial production and trade balance reports today, we aren't expecting this to detract from the bigger picture, and the looming Brexit deadline.
The ECB provided much to ponder after their meeting yesterday, with the Euro soaring against the likes of the US Dollar and Sterling. Inflation is proving to be the chink in an otherwise strong European armour, partially bought about by the strength of the Euro and its clear from Lagarde's comments yesterday that the Eurozone will focus on forcing inflation higher in order to stimulate the economy and create more jobs.
There have already been discussions around the ECB artificially manipulating the value of the Euro, however Christine Lagarde has suggested that there is no need to over react to euro appreciation. She suggested that they will closely monitor the euro value over the coming months in order to combat their stubborn, stagnant rate of inflation. She went on to discuss the PEPP envelope, which is used to provide to small and medium sized businesses in the EU during the pandemic, and has had investor's rewarding the single currency with positive movements.
The ECB also raised its GDP forecasts for 2020, 2021 and 2022 and boosted its 2021 inflation forecast. After this month’s record low CPI report, investors worried the ECB would lower its inflation projections but these upgrades are a reflection of their confidence in the economy.
Lagarde was relatively hawkish in her outlook of the Eurozone and the economy in the coming period, stating that data suggests a strong rebound with manufacturing activity picking up and domestic demand recovering significantly. However, she also threw some caution to the wind in her comments, stating that uncertainty remains and ample stimulus is still needed. All in all, the tone was positive and its clear that there is less concern with the Eurozone than some of its other developed nation peers, and with this could see further Euro strength in the coming weeks.
1.0750 - 1.0830 ▼GBP/USD:
1.2740 - 1.2835 ▼EUR/USD:
1.1835 - 1.1910 ▲GBP/AUD:
1.7320 - 1.7635 ▼GBP/NZD:
1.9010 - 1.9420 ▲