Unofficial reports of Brexit talks stalling and a hard-line stance against the UK from EU states have contributed to the pound’s fall in value and this movement has presented the most favourable levels in three-weeks for clients selling euros and buying sterling.

Chief EU negotiator Michel Barnier has told ambassadors that a deal ‘hangs in the balance’ and France’s President Emmanuel Macron has outlined a strong stance against the UK if concessions on fisheries are not made. It is also reported that France, and other hard-line EU state members are pushing Barnier to ensure they have a chance to oppose any deal with the UK before anything is signed off and to declare a failure in talks if the UK do not accept EU demands by the end of the week.

Brexit Trade and G7 Summit

We have seen in recent weeks and months with sterling value, that as fears of a deal not being reached increase the pound weakens, and the trend has continued this week. Until there is some concrete news released on the outcome of talks it would seem likely the pound is set to continue to trade in volatile conditions and is likely to remain under pressure. Goldman Sachs in London are now predicting that it is very unlikely a deal will be reached next week, but are expecting more firm headlines following next weeks EU Summit, "While the UK-EU trade talks have taken longer than originally planned, our economists continue to expect a 'thin' free trade agreement in goods; the EU Council meeting on 10-11 December looks like an achievable goal to see a final agreement, in our view".

If a deal is struck, then their view is that GBPEUR could reach as high as 1.15 which could provide an opportunities to take advantage of for clients buying euros. News yesterday that the UK have approved Pfizer’s Covid vaccine could also help a sterling recovery, with Britain beating the rest of the world in rolling out a mass vaccination program from as early as next week. Health Secretary Matt Hancock was extremely upbeat on the announcement, stating, "I'm confident now, with the news today, that from spring, from Easter onwards, things are going to be better. And we're going to have a summer next year that everybody can enjoy."

The UK have ordered 40 million doses of the vaccine and hope to have inoculated all those most vulnerable including the elderly and care workers by Spring next year. This news comes at a timely moment for the UK, after the OECD announced yesterday that the UK economy is amongst the worst hit by the pandemic and could shrink by as much as 11.2% in 2020. The rollout of the vaccine therefore provides some optimism that a recovery can begin next year and could therefore result in sterling gains.

COVID Crisis in the US Harming USD Value

GBPUSD has been rising steadily this month and reached almost the highest levels in a year earlier this week on concerns of the spread of Covid across the US, but much of these gains were wiped yesterday on fresh no-deal Brexit fears harming sterling value. As a result, GBPUSD fell to a seven-day low yesterday reaching 1.3295.

With Thanksgiving now over in the US and Christmas approaching, lockdown measures are starting to be implemented across some states and this could have an impact on any economic recovery and therefore have a knock-on effect on USD value. News released yesterday showed that US Manufacturing activity in November slumped due to the recent resurgence in Covid cases, resulting in several factories having to temporarily close. 4.2 million cases of Covid were reported across the US during November and the Fed announced yesterday that manufacturing output is 5% down since the start of the pandemic due to the disruption caused.

In an address yesterday, President-elect Joe Biden pledged that assisting businesses and workers who have been hit hardest by the pandemic is high on his priority list once he is inaugurated in January. “My transition team is already working on what I will put forward to the next Congress to address the multiple crises we’re facing, especially the economic crisis and Covid.” Meanwhile, Trump is yet to officially concede the November election and his lawyers are still working on his challenge to the result. He has, in any case, committed to re-running for President if his challenge is unsuccessful, reportedly claiming at a White House reception this week, “We are trying to do another four years, otherwise, I’ll see you in four years.”

With the recent rise in cases and further restrictions being implemented, today’s job numbers released from the US could provide some volatility for USD value. Nonfarm payrolls data released tomorrow which historically can cause large shifts in USD value, so these data sets are worth keeping a close eye on if you have an upcoming currency requirement.

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