Pound (GBP) Gains Tempered by Shifting Brexit Talks Mood
The Pound (GBP) extended its gains through much of Thursday’s European session on growing optimism over progress in UK-EU Brexit trade talks after EU chief Brexit negotiator Michel Barnier commented ‘good progress’ is being made.
However, talks in the evening between Boris Johnson and EU Commission President Ursula von der Leyen triggered renewed pessimism which caused GBP exchange rates to retreat.
Johnson commented that trade talks are in ‘serious situation’ and no deal is ‘very likely’ unless the EU ‘substantially’ changes stance, while von der Leyen said that ‘big differences remain’, causing volatility in Sterling this morning.
Aside from Brexit developments, this morning’s better-than-expected UK retail figures may offer the Pound modest support as sales bettered forecast coming in at -3.8% in November while the UK was under lockdown.
Euro (EUR) Rallies against Weak US Dollar
The Euro (EUR) was mixed during yesterday’s session, as the single currency’s negative correlation with the weak US Dollar underpinned EUR exchange rates with some support, pushing EUR/USD higher.
This support offset the gloomy confirmation that the Eurozone remained in a state of deflation, with November’s inflation reading at -0.3%.
Looking ahead, EUR exchange rates could receive a boost today as the Ifo Business Climate surveys unexpectedly showed an improvement in Business sentiment in December despite Germany entering a national lockdown.
US Dollar (USD) Slide Continues amid Risk-On Trade
The US Dollar (USD) extended its losses through Thursday’s session, falling on a lack of safe-haven demand as US Congress nears an agreement on a US fiscal stimulus package ahead of Friday’s deadline, driving an upbeat market mood.
On top of this, the USD selloff gather momentum as the latest initial jobless claims figure unexpectedly jumped to 885,000, significantly higher than the 800,000 forecast, which heightened concerns of the impact of surging Covid-19 cases are having on the economy.
In the absence of notable US data releases, the progress towards a US fiscal stimulus deal in Congress will drive US Dollar movement, with increased market risk appetite likely weighing on USD exchange rates.
Canadian Dollar (CAD) Dips after Revised Employment Change Reading
The Canadian Dollar (CAD) weakened during yesterday’s session despite the ADP employment change revealing 40,000 more jobs were created in November. However October’s revised figure of 383,500 jobs lost weighed on CAD sentiment.
The Canadian Dollar could remain limited today, with retail sales figures forecast to have slowed to 0.2% in October.
Australian Dollar (AUD) Slips on Profit Taking
The Australian Dollar (AUD) weakened slightly overnight despite iron ore prices continuing to rise, one of Australia’s main exports. Instead, the ‘Aussie’ come under some pressure from profit taking in the US Dollar and softer risk appetite.
New Zealand Dollar (NZD) Falls amid Calmer Market Mood
The New Zealand Dollar (NZD) also fell overnight as the risk-on mood calmed, with markets awaiting news on Brexit and US fiscal stimulus progress.