Pound Boosted by Brexit Optimism and Extension to UK-EU Talks, USD Volatile on Political Uncertainty

Pound to Euro and US Dollar Boosted by Optimism in UK-EU Talks

The Pound (GBP) climbed on Friday following rising optimism that progress is being made in UK-EU Brexit negotiations. This gave the Pound to Euro and US Dollar exchange rates a sharp boost, with GBP gaining a cent against EUR and USD.

Optimism over progress increased after German Chancellor Angela Merkel stated while no breakthrough has been made, she believes a deal can be reached while negotiations are ongoing. This optimism received a further boost on Saturday as Boris Johnson and European Commission President Ursula von der Leyen confirmed UK-EU negotiations would extend for another month.

Looking ahead, while more high-level talks over Brexit continue with negotiator Michel Barnier meeting Angela Merkel today, Pound exchange rates could weaken following this morning’s services and composite PMIs for September. The services PMI showed better-than-expected growth, although down on August’s five-year high, however, the survey highlighted continuing job cuts that could weigh on Sterling sentiment.

GBP is trading in a narrow range so far this morning, with the Pound to Euro exchange rate slipping slightly, and the Pound to US Dollar gaining modestly.


Euro (EUR) Falls as Eurozone Slips into Deflation

Euro (EUR) exchange rates fell on Friday after the Eurozone’s weaker-than-expected consumer price index pushed the Eurozone into deflation.

The bloc’s inflation rate came in at -0.3% for September year-on-year, down from the previous month’s 0.2%, fuelling worries over Europe’s recovery and likely to prompt a response from the European Central Bank (ECB).

Turning to today’s session, Euro exchange rates may receive a boost after German and Eurozone service PMIs came in higher-than-expected, although remaining just above stagnation and in contraction, respectively. Meanwhile, an improvement in retail sales could offer EUR further support if they show the forecast positive reading.


US Dollar (USD) Supported by Safe-Haven Demand following Trump’s Hospitalisation

The US Dollar (USD) trended higher on Friday after US President Donald Trump tested positive for coronavirus, causing a souring of market sentiment that lifted USD exchange rates.

However, despite USD/EUR gaining, the Pound strengthened against the US Dollar after positive Brexit headlines continued boosting Pound exchange rates.

Meanwhile, Trump’s apparent improvement in his condition as he appeared outside hospital lifted market sentiment at the start of the week, weighing on USD exchange rates with expectation he will be back to contest the US election in under a month. Added to this, lower-than-expected non farm payroll figures also dragged on US Dollar sentiment.

The US Dollar will likely be driven by volatility through this week triggered by questions hanging over Trump’s health, hopes over a coronavirus stimulus deal in US Congress, and today’s ISM non-manufacturing PMI for September expected to show strong growth.

USD exchange rates are trending lower today as market sentiment improves. The US Dollar to Pound exchange rate is steady, while the Dollar is falling versus the Euro.


Canadian Dollar (CAD) Slips on Declining Oil Prices

The Canadian Dollar (CAD) came under pressure as oil prices continued falling at the end of last week after markets soured following Donald Trump’s positive coronavirus test, with the commodity-linked ‘Loonie’ falling as WTI plunged to just above $37 a barrel.


Australian Dollar (AUD) Slips in Risk-Off Trade ahead of RBA Rate Decision

The Australian Dollar (AUD) struggled in risk-off trade at the end of last week over news regarding Donald Trump, before picking up slightly this morning on improving risk sentiment. Additionally, the National Australia Bank’s (NAB) business confidence index came in stronger than expected at its highest level since June, sup[porting AUD exchange rates.

Looking ahead, the Reserve Bank of Australia’s (RBA) interest rate decision could drive volatility in AUD exchange rates as while policy looks likely to remain unchanged for this month, the meeting could pave the way for future monetary easing.


New Zealand Dollar (NZD) Subdued despite Improving Market Mood

The New Zealand Dollar (NZD) is steady this morning as market sentiment picks up over reports of US stimulus hopes reaching an agreement and Donald Trump appearing in public after going into hospital at the weekend.

Matthew Andrews

Contact Matthew Andrews