At the time of writing, the pound has gained against the euro (+0.5%) and the USD (+0.45%) as the pound nears multi-month highs against most major currencies. Yesterday, the pound reached 1.1591 against the euro and 1.2797 against the USD. This movement is due to the positive sentiment coming out of Brussels where Brexit talks continue.

The pound is tipped for another day of volatility as markets eagerly await an update from Brussels as negotiators on both sides have worked through the night. At the time of writing, there is no official news however various reports suggest both sides are working on the legal text of a document.

PM Boris Johnson to provide Brexit legal text to the EU

PM Boris Johnson to provide Brexit legal text to the EU

Barnier has confirmed in Luxembourg that a deal is possible this week, however the UK will need to produce a legal text. The pressure is on for Johnson as the EU are pushing for concessions in order to strike a deal by the end of this week at the EU Summit. EU negotiators have stated they do not want to be negotiating at the Summit itself so any legal text and deal will need to be presented today. The EU have echoed the potential for a second (emergency) EU Summit before the end of the month (29th-30th). 

Let’s not forget, even if the UK and EU can progress with a draft deal, this will still need to be scrunitised by the House of Commons and voted through. The DUP still hold weight in this process, as they not only provide numerical support to the Government but also influence other Conservative MPs who would only back a deal if the DUP are on side.

Paul Meggyesi, an FX strateist with JP Morgan has commented, “For the first time our economists now believe a negotiated Brexit within a matter of weeks is now the single most likely path ahead”. JP Morgan have shifted their expectations for a negotiated Brexit up to 50%, a further extension to 45% and a no deal Brexit at 5%.

Today we have GBP Retail Price Index and Consumer Price Index data out at 09:30, however this will likely be overshadowed by Brexit developments.

Even though there is optimism surrounding Brexit, a lot could still go wrong in the coming days and clients selling sterling to buy other currencies should be cautious, as any negative news could initiate a correction in the markets and subsequent sterling weakness. For further information, you may wish to contact us and speak with a currency expert.

Brexit negotiations and Catalonia independence protests

Barnier has told the 27 EU states that he sees three possible scenarios for Brexit; Agree on a deal by Tuesday evening, delay to the UK’s departure or a breakdown of talks. A breakdown in talks has the likely effect of weakening the pound against all currencies, which could provide opportunities for clients looking to purchase sterling.

In other news, overnight has seen protesters and police clash in Barcelona as nine Catalan separatist leaders were jailed. The sentence was upheld by the Supreme Court and their sentence was 13 years in prison. The clashes through up challenges for central government in Madrid and pro-independence authorities, both of which are facing an economic slowdown and a fragmented political landscape. Back in 2017, Catalonia’s independence drive triggered Spain’s biggest political crises in decades, clients looking to sell euros to buy sterling and other currencies should keep a close eye on these developments as they have the potential to weaken the euro if it escalates.

Continuing tensions between the US and China likely to impact USD

US China trade talks ramping up ahead of Asia-Pacific Cooperation Summit

China has stated they want further talks in the coming weeks to iron out the details of the “phase one” trade deal outlined by the US. We could see this trade deal signed by the Xi Jinping and President Trump at the Asia-Pacific Cooperation summit on the 16th-17th November. “Phase one” deal includes information relating to agriculture, currency and aspects of intellectual property protection. However, further tariff hikes are still scheduled for this week and in December, so tensions could escalate.

US news has been light of late and Brexit will continue to dominate in the coming days. We have US Retail Sales figures out today at 13:30. 

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