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Markets await Boris Johnson Brexit talks decision

GBP - British pound

Brexit trade talks continue to yield little progress while increasing COVID restrictions dampen any hope for a rebound in economic activity. With the EU leaders summit beginning today, we will have a clearer picture whether Brexit talks will continue through the coming weeks, suggesting compromises have been made or abandoned and a hard Brexit becomes a reality.

Yesterday the EU’s chief negotiator, Michel Barnier, stated that “We will do everything we can to reach a deal but not at any price and we will continue intensive talks in the coming weeks.” He also went on to state “we have prospects of a deal, but a lot of work still needs to be done.”

We now await the reaction from UK Prime Minister, Boris Johnson, as to whether the UK will want to continue with negotiations beyond this week.

Kicking the can down the road once again does not exactly mean we are getting closer to a Brexit deal being struck but the news did see Sterling pull back against the dollar after briefly dipping below the 1.29 level.

GBP/EUR also made a run lower and threatened to break below the 1.10 level before finding some support and rallying to above 1.1050.

While Boris Johnson’s decision to continue or walk away from Brexit talks will dominate rate movements, we also have the release of European Consumer price index numbers due for September. Core CPI figures are due to hold at 0.2% but any deviation from this will likely see some volatility.

Key Movers

Safe-haven currencies such as the USD, JPY and CHF all trended higher through Thursday, as Brexit uncertainty, rising COVID infections and lacklustre US fiscal stimulus negotiations saw investors move demand away from more riskier currencies.

As such, EUR/USD and GBP/USD briefly moved below 1.17 and 1.29 respectively before finding some support.

On the other side of the world, the Australian Dollar retreated against most of its counterparts as recent comments from the Reserve Bank of Australia governor Philip Lowe weighed on the currency.

In a Q&A session Lowe suggested an interest rate cut to 0.1% was now appropriate given the worst of the pandemic shock was over, allowing the impact of rate adjustments to filter through to the real economy. Lowe’s comments all but guarantee a rate cut next month, an adjustment we expect will be accompanied by upgraded in Quantitative Easing measure and therefore a downward move for the AUD.

Looking ahead to today’s data releases, apart from European CPI numbers we also have US Retail Sales, Industrial production and Michigan consumer sentiment Index for September.

Expected Ranges

GBP/USD: 1.2875 - 1.30 ▲

GBP/EUR: 1.10 - 1.11 ▲

GBP/AUD: 1.8175 - 1.8325 ▲

GBP/NZD: 1.95 - 1.9650 ▲

GBP/CAD: 1.70 - 1.7150 ▲