GBP/EUR – Lack of Brexit Progress Limits Pound Appeal
Speculation over Brexit discussions between the UK and EU continued driving Pound volatility over the course of the last week.
With the two sides not yet at an agreement on some key issues, the mid-November deadline for talks appears set to pass without a resolution.
However, investors remain optimistic that officials will continue to negotiate until the ultimate December deadline, keeping the possibility of a deal on the table.
News of progress in Brexit talks will continue driving GBP exchange rates through the week, while reports from other vaccine trials also have the potential to buoy Sterling.
GBP/USD – Pound Benefits from BoE Policy Meeting
GBP exchange rates received a strong boost last week as the Bank of England (BoE) did not make any fresh mention of negative interest rates in its November policy minutes.
Even though policymakers opted to expand the quantitative easing programme by an unexpected £150bn, the Pound made gains.
Further support could be in store for the Pound on the back of Thursday’s third quarter UK gross domestic product report.
As long as the economy shows a major rebound on the quarter, this may help to temporarily ease worries over the fourth quarter outlook and the likely impact of the second national lockdown.
USD/GBP – US Dollar Falters as Biden Claims Presidency
As the initial uncertainty following election night started to fade, the US Dollar fell back out of favour with investors, with safe-haven demand rapidly fading.
Joe Biden’s victory in the presidential election kept markets in a more risk-positive mood, leaving USD exchange rates on a weaker footing.
The mood towards the US Dollar could sour further on Thursday with the release of October’s inflation data as forecasts point towards a softening in the headline rate.
If inflation dips from 1.4% to 1.3% at the start of the fourth quarter as anticipated, this could encourage a greater sense of Federal Reserve caution, further limiting the appeal of the US Dollar.
EUR/USD – Growing Risk of Double-Dip Eurozone Recession Drags on Euro
Fears of a potential double-dip recession for the Eurozone weighed on the Euro through this week, especially in the face of resurgent risk appetite.
Although the German trade balance showed an unexpectedly strong widening of the surplus, this failed to shore up the single currency, with further selling pressure coming on the back of a weaker ZEW economic sentiment index.
However, confirmation that the German inflation rate turned positive on the month in October may offer EUR exchange rates some support.
On the other hand, if September’s Eurozone industrial production figures fail to demonstrate solid gains, the Euro could be exposed to renewed selling pressure on Thursday.