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Sterling rebounds as UK chief Brexit negotiator calls for an extension to talks

GBP - British pound

Sterling experienced a complete change in fortunes through yesterdays trading sessions compared to the previous day. After experiencing its worst fall in 3 months, GBP/USD moved from lows of 1.2860 to a high of 1.3060 and took the title of best performing currency.

The bounce came as the UKs Chief Brexit negotiator, Lord David Frost, is reported telling Prime Minister Boris Johnson not to walk away from Brexit trade talks because 'deals to cover security and fishing were possible over the next two weeks'.

He also added that any final decision on whether the UK will stay at the table or walk away towards a no-deal outcome will not come before Friday and will depend on signals from the European Council meeting that is scheduled to begin later today.

It is therefore likely that we will see low volatility for sterling through early trading until news breaks of either Boris walking away or if he will extend negotiations.

If an extension is put in place, we could see a fall for sterling with GBP/USD holding below 1.30 while a no deal will obviously cause a very sharp decline.

Key Movers

The Euro traded lower against most of its counterparts yesterday as news that the coronavirus pandemic in Europe is worsening quickly. EUR/USD has fallen to lows of 1.1715 while GBP/EUR is holding back above 1.10 and briefly touched a high of 1.11.

Italy reported its highest ever daily virus cases while Germany is closing in on its record high. France declared a national state of emergency that will mean curfews for major French cities between 6am-9pm.

Investors will be keenly watching European data releases next month when October’s data is released to see just how badly the European economy will be affected.

Across the pond, equities and currency markets have been rallying on the hope that some type of stimulus would be approved by the US before or shortly after the presidential election. However, at this stage, it is looking increasingly unlikely following continued comments from House Speaker Nancy Pelosi where she repeatedly described Trump’s stimulus offer as grossly inadequate. As such, demand for the safe-haven USD is increasing and so is its value.

Looking ahead to today’s data releases, no further data is due from the UK or Europe while over in the states we will see the release of Jobless claims numbers for October and the empire state and Philadelphia Fed manufacturing surveys. These surveys plus the release of tomorrows US retail sales figures should give a good indication of a US slowdown.

Expected Ranges

GBP/USD: 1.28 - 1.31 ▲

GBP/EUR: 1.09 - 1.1150 ▲

GBP/AUD: 1.80 - 1.8450 ▲

GBP/NZD: 1.94 - 1.9750 ▲

GBP/CAD: 1.70 - 1.72 ▲