Daniel Wright
December 11, 2020

BREXIT DOMINATES NEWS HEADLINES

Sterling has had a rollercoaster of a week to say the very least swing form month highs to month lows as Brexit is meant to be coming to an end. But as the days go by the news flow we are seeing still leave it completely open to interpretation.

At the start of the week we saw a big drop off for GBPEUR rates on Monday morning as rumours spread that Boris was preparing to walk away without a deal. As that rumour diminished the rate started to claw back rising from its lows of 1.0939 against the euro and 1.3224 against the dollar. The following talks between Ursula and Boris looked promising on Tuesday evening as Boris agreed to waiving 3 key clauses on the withdrawal agreement. This was a positive concession by the PM and on Wednesday morning rates across the board responded quickly gaining almost a 2 cent rise against the dollar.

Although there has been some positives from this week’s Brexit negotiations, talks have soured once more as PM Boris Johnson and Ursula von der Leyen failed to make progress on a deal over dinner in Brussels.image

HEIGHTENED POSSIBILITY OF NO-DEAL CAUSES STERLING SLUMP

Due to the lack of progress, Boris mentioned last night that there is a “strong possibility” that a deal can be reached noting now is the time to get a deal over the line.

The two negotiating teams have now set a Sunday deadline for talks but after weeks of wrangling over the same issues it is hard to see any real change. A failure to reach agreement this weekend could raise the volatility in markets into year-end. Institutions could look to take profits and adjust their exposures to a No Deal environment in early-2020 where WTO tariffs would take effect.

Today we have the EU summit which will last all day, very close eyes will be watching as this is a key decider if Brexit can or cannot be done in time for 31st of December. If nothing is moved closer here then it may result in a no-deal situation which is likely to have to very severe effects on sterling’s value across all major pairings.

EU AGREE COVID RECOVERY FUND TERMS

The EU have managed to get a deal over a €1.8 trillion budget and Covid recovery fund after making some compromises with Hungary and Poland. The 2 countries had threatened to veto the deal due to an attempt to link the disbursement of funds to respect for the rule of law. Poland and Hungary’s speakers in parliament met on Wednesday to show there distaste with the clauses forcing a contingent on a adherence to the rule of law.

With vaccines on the rollout in the UK, France is taking two steps back after announcing they will impose an 8pm Curfew. Forcing any nonessential travel and a “must stay at home” rule.

Travel restrictions are now being lifted from some EU destinations, notably Ireland but Jersey still remains off limits. With countries slowly starting to open up this could level the playing field with economies getting back on track driving GDP back up. Europe and the UK have been gripped by both Brexit and the Pandemic but as they both could be ending soon this is so really optimistic times ahead.

DOLLAR SUFFERS AS COVID GRIPS THE US

COVID has gripped the US with the number of people in hospital passing 100,000 for the first time, a figure that has doubled since early November. New cases rose by a record 195,695 on Wednesday, and the daily death toll of 2,733 was close to a new high, causing worry for USD investors.

With the new record highs in cases, there has been a breakthrough over the pond as experts have pushed for approval of the Pfizer vaccine yesterday evening. With the UK steaming ahead with their Vaccinations the US will sure to be watching closely.

The US saw a very turbulent week with lowest on 1.3184 with its GBP pairing and 1.2058 with its euro pairing. The dollars looks to have gained a lot of strength vs the pound  in the later days of the week. This is likely due to the news flow surrounding the pound and euro pushing investors back to the safe heaven currency.

Midday we have a lot coming out of America with retail and Core retail sales month on month, flash manufacturing/ services PMI. Along with a FOMC statement and economic projections.

UPCOMING NEWS

  • 11th Dec – Later in the day we have a talk from Bank of Canada, Gov Macklam speaking, something any CAD buyers or sellers should keep a close eye on.
  • 15th Dec – Next week we have a late start but on Tuesday morning we have a monetary policy meeting for AUD.
  • 16th Dec – Wednesday we have a heavy Euro news day starting with French Flash Services and Manufacturing PMI. Followed by Germany with the same statistics. There is also a EuroGroup meeting all day.
  • 16th Dec – Later that night we have GBP quarter on quarter coming out of New Zealand.
  • 16th Dec – On Wednesday from the same corner of the world we have Employment change and unemployment rate from Australia.
  • 17th Dec – Thursday Switzerland has a ANB Monetary policy assessment and policy rate. Followed by a press conference.
  • 17th Dec – Later on Thursday we have GBP Monetary Policy Committee official rate vote. This will be followed by  policy summary and then the results.
  • 18th Dec – Lastly on Friday we have a monetary policy statement from Japan.