GBP/EUR – Hopes of Brexit Breakthrough Boost Pound
Speculation that the UK and EU could reach a deal imminently at crunch Brexit talks helped to drive the Pound higher this morning.
Hopes that the two sides could still come to an agreement, avoiding the prospect of a no-deal scenario, gave GBP exchange rates a solid boost as Boris Johnson went to Brussels for talks with European Commission President Ursula von der Leyen.
With the UK also no longer planning to go against its earlier commitment to honour the Northern Ireland protocol, investors found greater cause for reassurance.
As long as the agreement emerges in the days ahead, the GBP/EUR exchange rate looks set to remain on a solid footing, especially as optimism over progress towards a widespread Covid-19 vaccine adds to market optimism.
GBP/USD – Pound Vulnerable to Softer October GDP
Worries over the health of the UK economy eased slightly as the finalised UK services PMI for November saw a slight upward revision.
While the PMI remained planted in contraction territory, the Pound still found some support on the back of the improved reading, with a stronger construction PMI also adding to the positive outlook.
However, the mood towards the Pound could sour again on Thursday if October’s monthly GDP reading shows a fresh slowdown in growth momentum.
Evidence that the economy struggled to hold onto its earlier growth at the start of the fourth quarter may expose GBP exchange rates to another bout of selling pressure as fears of a double-dip recession pick up.
USD/GBP – US Dollar Plummets amid Risk-On Trade
The US Dollar suffered through the week as coronavirus vaccine optimism and renewed talks for a US stimulus package boosted market mood, which weighed on demand for the safe-haven currency.
Further pressure on the US dollar came from Friday’s non-farm payrolls falling significantly short of forecast, showing that only 245,000 new jobs were added to the US economy rather than the expected 469,000, which highlighted concerns over the US economic recovery.
If November’s inflation rate weakens as anticipated, this could see USD exchange rates shedding fresh ground as the case for greater Federal Reserve policy action grows.
Another weekly increase in the initial jobless claims figure may also weigh heavily on the US Dollar as anxiety over the health of the labour market continue to grow.
EUR/USD – Weak German Trade Conditions Weigh on Single Currency
Demand for the Euro weakened today in the wake of an unexpected narrowing of the German trade surplus, reflecting a softer month of export volume growth.
With confidence in the outlook of the Eurozone’s powerhouse economy fading, the appeal of the single currency diminished as the odds of a weaker fourth quarter growth rate picked up.
As markets expect to see the European Central Bank (ECB) deliver monetary policy loosening at its December meeting the strength of EUR exchange rates looks set to remain muted this week.
Even if ECB policymakers talk down the prospect of any further policy action to come, the Euro could trend sharply lower in the wake of Thursday’s announcement.