The past week has seen sterling continue to trade in volatile conditions, but within tight ranges that are mainly being driven by the markets seeking clarity over Brexit developments and the UK’s response to the rising Coronavirus cases across the country.
News earlier this week that disagreements over UK fisheries are still a major hurdle to overcome in agreeing a deal have weakened the pound, whilst any rumours that there is progress being made towards a deal help give GBP a slight boost. As such, we have seen GBPEUR and GBPUSD shift in value by just over 1% between the high and low over the course of the past seven days. Until there is a significant breakthrough or deadlock in Brexit negotiations it would appear as though this trend will be set to continue.
UK GDP data this morning has done little to impact GBP value, with the UK economy continuing its recovery with 2.1% growth in August, but below initial expectations. The 'Eat Out to Help Out' scheme was a major factor in the growth, but the rise was far lower than that seen in June and July and brings concerns over whether the UK’s recovery is running out of steam. The markets will now be looking to Monday’s anticipated address from PM Boris Johnson for clarity on what fresh Covid restrictions could look like and the impact they would have on future economic growth.
Investors will also be keeping a close eye on the upcoming EU summit on October 15th as this is when we are next likely to be given more concrete information from the EU’s perspective on how likely a Brexit deal is to being agreed by the end of this month. There is a lack of significant detail on the progress of negotiations at present, but it would appear the two sides are no nearer agreeing a deal than at any other point during the past few months. Earlier this week the UK’s chief negotiator, Lord David Frost, made it clear that an agreement on fisheries is ‘the most difficult issue’ still to overcome and that there were still big gaps between the two sides on other areas of a deal. Meanwhile, it appears that the EU feel the UK are still not showing their hand in negotiations, with European Council President Charles Michel calling for the UK to ‘put its cards on the table’.
Where both sides do seem to be able to agree is that a deal needs to be reached by the end of this month in order to be signed off before the end of this year. Therefore, the run up to the 15th October could prove volatile for GBP exchange rates as the likelihood of a deal being agreed or not is sure to have significant ramifications for the value of Sterling. If you have an upcoming GBPEUR requirement it would certainly be worth speaking with your account manager here before October 15th in order to find out how we can help you minimise your exposure to currency fluctuations through the expertise and contract options we can make available to you.
October 15th could also prove a volatile day for USD exchange rates, with the second Presidential debate between Joe Biden and Donald Trump scheduled to take place. Trump threw the likelihood of this debate going ahead in to doubt yesterday however, stating that he would not participate in a virtual debate, which has been requested following his Covid-19 diagnosis. Trump believes this would negatively impact him and comes at a time when he is significantly behind Biden in the polls last conducted up until October 5th.
Trump has now been declared fit and healthy following his contraction of the virus at the beginning of this month and is planning on rallying across Florida and Pennsylvania this weekend. He will be keen to convince voters that he is fit and healthy enough to continue as President and help bridge the current gap between himself and Biden.
Earlier this week there was a relatively dovish tone from the Fed in their latest monetary policy minutes on Wednesday, with a commitment to keep interest rates near zero until inflation rises to 2% and looks set to rise further. They pointed to an improvement in domestic conditions and GDP numbers, but this has been due to an injection of monetary stimulus and that more of this will be needed going forward.
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