It has been a much better week of trading for the pound against all major currencies as sterling exchange rates have lifted across the board mainly due to the increasing sentiment that a Brexit trade deal with the EU is fast approaching and may be agreed in the coming days.
Comments from Ursula von Der Leyen yesterday did little to dampen those spirits, with the President of the European Commission commenting the following;
As things stand I cannot tell you whether there will be a deal or not, but I can tell you that there is a path to an agreement now. The path may be very narrow, but it is there, and it is therefore our responsibility to continue trying.
The good news is that we have found a way forward on most issues, but this is now case of us being so close and yet being so far away from each other, because two issues now remain outstanding, you know them: the level playing field and the fisheries.
With this in mind along with the fact that negotiations have continued past yet another deadline there is a growing expectation that although a fully fledged deal may not be completed in time, it is likely now that ‘no deal’ will be avoided, the fear of which is one of the big factors that has held back the value of the pound over the past few years.
This is an ever-changing scenario however, so if you are in the position where you need to buy or sell a large amount of sterling in the coming days or weeks then it is a market to watch closely, during the festive season there is an increased chance of volatility due to thinner trading levels, so as we edge closer to Christmas, even the smallest piece of news can have a large impact on the value of sterling exchange rates.
Today also sees the release of the Bank of England interest rate decision at midday and this also has the potential to be a market mover for the pound.
No changes to interest rates are expected but any hints to changes in fiscal policy moving forwards could also impact sterling exchange rates against all major currencies, so it is an important release to keep an eye on.
Yesterday the GBPUSD interbank exchange hit the highest levels seen since May 2018, offering those looking to buy dollars or any currency pegged to the dollar a great opportunity.
Much of this movement has been down to the news of a possible Brexit deal giving sterling a boost, but equally we have seen investors and speculators slowly move away from the dollar in the past few weeks, even now there is a clearer path as to who will be running the US from January 2021 onwards.
The key concern is the huge economic hangover that the US faces following the pandemic, which has arguably hit the US worse than most, with more than 300,000 deaths due to covid 19, significantly more than anywhere else around the globe.
One of the big sticking points has been the stimulus package over in the States and the impact that may have on the economy in the coming months.
Yesterday news broke from NBC that the stimulus that is being proposed could equate to $600 per person, $300 unemployment and $300 ppp (paycheck protection program). Whilst this is positive news that progression has been made, the US economy also relies on consumer spending and this is a sign that with so many people currently in unemployment over in the US spending may drop off significantly.
This may have already started as Retail Sales yesterday were much weaker than expectations, so 2021 has the potential to be a year where dollar exchange rates have the ability to really struggle against all major currencies.
Euro exchange rates have also been making gain against the Dollar and yesterday hit the highest levels we have seen for EUR USD interbank rates since 2018.
Much of this is due to the pressure on the U.S economy from the pandemic as mentioned in the USD section on our website, but it is also key to remember that there could be further to go for this pairing should a Brexit deal be done.
Removing no deal from the table may not only assist GBP but it also has the potential to give euro exchange rates a lift too.
On top of this, many technical analysts feel that the dollar may continue its poor form into 2021 as we see a new global growth cycle and investors and speculators alike look for higher yielding opportunities around the globe, when cycles like this occur safer have assets such as the dollar can tend to lose value, so should Brexit progress be made and the consensus that USD may be one of the bigger losers in the coming months come true then 1.25 or even 1.30 for EURUSD cannot be ruled out as a real possibility.
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