Daily Currency Update

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Pound pushes higher on Brexit deal hopes.

GBP - British Pound

GBP/USD has made a play for 1.35 this morning as hopes grow that we will finally see a UK/EU trade deal agreed in the coming days. Although we have been here many, many times before, 11th hour deals are the trademark of the EU and with the 31st December deadline approaching it seems we could be close to an agreement that is palatable to both sides. GBP/USD broke through 1.34 just after 4pm yesterday when BBC journalist Nicholas Watt tweeted that there was a "Big buzz" among Tory MPs that we were getting close to something that Eurosceptics could accept. The warm mood music has continued to play this morning with European Commission President, Ursula von der Leyen stating there is a "path to an agreement now." It should be said throughout the duration of the negotiations we have constantly been alternatively fed positive, then negative comments however with the clock ticking down it seems we may finally be nearly there. If later this week Leader of the House of Commons and ardent Brexiteer, Jacob Rees-Mogg ask the House of Commons to sit on Monday and Tuesday it could be a signal that they are going to debate and vote on a deal which could send the pound even higher.

Data-wise this morning UK inflation dropped to its second lowest level in over four years with benchmark CPI slipping to 0.3% y/y a far bigger drop than had been expected. The pound barely batted an eyelid on the release which highlights that the only news that any pound trader cares about is a UK/EU trade deal.

Later this morning we have flash PMI data from the UK, which is expected to show expansion in the services and manufacturing sectors although this data was collated before large swathes of England were added to tier 3 Coronavirus restrictions so will likely be ignored. GBP/EUR is up a touch to 1.1065 although a stubbornly strong euro means the pounds gains are not as impressive against the shared currency as they are against the dollar.

Key Movers

Outside of the Brexit bubble markets around the world will likely be more keenly focused on the Federal Open Market Committees policy decision tonight as well as ongoing negotiations in the US Senate over a Covid-19 relief package. The Federal Reserve isn’t expected to change interest rates this evening however it will likely increase the level and scope of its emergency lending packages in the face of soaring coronavirus cases throughout the US. Many states are imposing tougher restrictions in an effort to battle the pandemic which has now cost over 300k lives and infected nearly 17m people. Democrats and Republicans still can’t find a middle ground to end the deadlock over its own relief package to help Americans fight the financial cost of Covid-19. Negotiations are ongoing and Senate Majority Leader, Mitch McConnell sounded upbeat in recent comments however that a deal could be struck before the end of the week.

All major European equity markets are in positive territory this morning with extra upward pressure applied by some very encouraging PMI data from the Eurozone. All the closely followed prints have shown better than expected readings with Manufacturing and Services in Germany, France and the EZ as a whole beating forecasts. Possibly the most eye-catching was the French Services PMI which was predicted to show a huge continued decline of 39.9 and actually printed 49.2 close to the 50 level that divides expansion and contraction.

This afternoons big data is US retail sales due at lunchtime however thereafter it will be all eyes on the Fed. EUR/USD trades higher at 1.22.

Expected Ranges

GBP/USD: 1.34 - 1.36 ▲

GBP/EUR: 1.10 - 1.1145 ▲

GBP/AUD: 1.7740 - 1.79 ▲

GBP/NZD: 1.8920 - 1.91 ▲

GBP/CAD: 1.71 - 1.7240 ▲