Pound dips as Brexit talks enter “moment of truth”
Friday 18 December, 2020
Daily Currency UpdateThe ongoing UK/EU trade deal saga seems to be slowly coming to a conclusion with talks between both sides continuing today and rumours abounding that fishing rights are the final obstacle that needs to be overcome. EU Chief Negotiator, Michel Barnier has been updating EU officials in Brussels this morning on progress made over the past couple of weeks and has stated that we are now at the "moment of truth." Optimism that we were on the brink of a deal yesterday saw GBP/USD break above 1.36 for the first time this year however it has since retraced back to around 1.3550 after comments from UK Prime Minister Boris Johnson that discussions were in a "serious situation" and EU Commission President Ursula von der Leyen saying "big differences" remained however also stating "substantial progress" had been made. A positive signal we are on the brink of a deal would be confirmation that UK parliament is being recalled to sit on Monday and Tuesday however we are yet to hear anything regarding that from Leader of the House of Commons Jacob Rees-Mogg.
The other main story yesterday was the Bank of England’s interest rate decision which unsurprisingly saw rates left unchanged. There was also no change to its bond buying programme and ongoing warnings over the disruption of not having a trade deal with the EU would cause. It downgraded its expected growth forecast for the year on the back of the November lockdown in England and ongoing tight restrictions being in place throughout the UK.
This morning we have seen a dip in November UK retail sales figures which will come as no surprise after the shutdown in England throughout November.
As mentioned GBP/USD trades around 1.35 with GBP/EUR at 1.1050.
Key MoversNegotiations are also ongoing in the US at the moment, this time between Democrats and Republicans over the much needed stimulus package to assist Americans impacted by Coronavirus. The current package agreed earlier this year is due to expire later this month and in the face of a tsunami of coronavirus cases currently sweeping the US one is badly needed to shore up the finances of millions of Americans who are facing a bleak winter. Senate Majority Leader, Mitch McConnell advised that senators are preparing to work over the weekend if necessary, stating that they were on the "1 yard line" with regards to completing a deal.
Data-wise, US unemployment posted 885k for last week compared to a predicted 817k. The Philly Fed Manufacturing Index also fell short of predictions posting 11.1 when 20.1 was eyed.
From the eurozone benchmark inflation, CPI y/y, posted -0.3% well below the target of just under 2% and likely in no way being aided by the resiliently strong euro which at present is bringing down the cost of imports from outside the bloc.
After a big risk-on rally that saw stocks around the world push higher yesterday, things are more mixed today as a slight risk off tone hits equity markets and the dollar posting some small gains as we await the outcome of the high level talks either side of the Atlantic. EUR/USD trades at 1.2255 with USD/JPY at 103.45
- GBP/USD: 1.3470 - 1.3620 ▼
- GBP/EUR: 1.0980 - 1.1130 ▼
- GBP/AUD: 1.7730 - 1.79 ▲
- GBP/NZD: 1.8910 - 1.9090 ▲
- GBP/CAD: 1.7170 - 1.7320 ▲