With so much going on for sterling exchange rates it is very difficult to pinpoint which dominant direction the pound will take. Last week we saw GBP/EUR exchange rates drop to 1.0837 which was a trough last seen in September. GBP/USD was slightly better but still experienced more than a 2-cent drop to the low 1.31’s.

Having said this, sterling has rebounded and gained most of its lost ground against the euro and US dollar as we see GBP/EUR at 1.0950 and GBP/USD at 1.33. It does however seem surprising that this has occurred considering that much of the news reports have been damaging for the pound.

Brexit update

On a Brexit standpoint, we saw a large proportion of sterling weakness off the back of the fact that UK PM Johnson and ECB chief Ursula von der Leyen’s dinner did not achieve any progress and subsequently resulted in repeated mentions of a likely no-deal Brexit which plastered the media for several days. This week though, the markets are slightly more optimistic, or potentially desperate, as the UK and EU soldier on to try and get a trade agreement across the line.

There have been many accusations thrown out recently regarding the financial savviness of Brexit politicians. This is considering that one of the biggest stumbling blocks for not achieving a trade deal is the UK fishing rights which makes up less than 1% of the UK GDP indicating the how such trivial matters, caught up in wanting to retain national sovereignty, could have lasting ramifications for the economy.

Aside from Brexit, London is entering COVID-19 tier 3 restrictions tomorrow as coronavirus cases are rapidly rising and are wanting to cut these numbers if the government wish to keep their promise of not adjusting the reduced restrictions surrounding the week at Christmas where 3 separate families can meet indoors. This now means that an additional 10 million people will be placed into the highest tier of restrictions and causing all non-essential and hospitality services to close besides takeaway and delivery. As the capital city, the significant number of pubs and restaurants which will not receive any business will certainly cause problems for the economy and further point towards the double-dip financial recovery the UK could be headed for.

In extension, since the start of the pandemic the UK has lost more than 800,000 jobs which has so far bumped unemployed by around 0.5% up to 4.9%. Whilst this comes as dire news to many people, there are some estimate from the World Bank who suggest that UK unemployment could rise to 8% and other sources suggesting that above 10% is plausible. Fortunately, the furlough scheme is still in effect until the end of March which is supporting many in these troubling times. As we turn the corner into 2021 various questions will be asked – what will the state of employment look like when the furlough scheme ends and where will the economy be as a result?

Euro

Whilst the euro has done well against riskier currencies such as the pound, it has also faired well against other safe-haven currencies. The EUR/USD exchange rate, the most globally trade currency pairing is now sitting at 1.2150. The start of this year saw the pair at 1.11 and has now gained more than 10 cents since that point in time. Whilst the US has had its own troubles such as the being labelled the worst virus-hit country in the world whilst also dealing with the more recent US election. All of this has contributed to US weakness with a touch of resilience from the euro’s perspective to boot.

EU Christmas lockdowns

The Netherlands join Germany as the second EU country to implement a lockdown which covers the Christmas period up to early January. Both nations have rising COVID-19 cases and are wanting to check this exponentially accelerating trend before a vaccine is readily available for its citizens. The Netherlands has seen some days of 10,000 cases which is a very high figures considering both its low population and population density.

As we all know, December can be a very expensive month for many people with Christmas shopping and gift buying. With these national lockdowns this will have detrimental impact on their respective economies which, just like the UK, could see a double dip recession following the historic growth some countries have experienced following the reopening after the first lockdown.

Data Releases of Importance

Data Releases of Importance

German Markit Manufacturing data out today is expected to drop from 57.8 to 56.4 whilst the overall EU equivalent is coming off worse but with a slight predicted uplift from 45.3 to 45.8.

US retail sales figures are not set to seem much a change with levels expected to remain relatively stagnant with levels to come in round 0.2% tomorrow. Following this, later on Wednesday the US will see the US Federal Bank interest rate decision, but this is not expected to carry much weight for the US dollar as it is expected to remain at 0.25%. The follow up statement for the press conference may create more volatility as the nature of the announcement and what is expected to happen to the US economy as we move into next year could weaken the USD if the markets do not see a light at the end of the tunnel regarding COVID-19.

There could be some significant currency movement coming up with the upcoming Brexit developments or regarding coronavirus so keep on top of your trading positions, please contact your account manager here at Foreign Currency Direct today.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.