It was a tough start to the week for sterling exchange rates, as UK Prime Minister Boris Johnson confirmed that a trade deal had to be secured by the 15th October, which is the date of the next European Council meeting. The Prime Minister in his speech went on to say that a no deal Brexit would be good for the UK as we would ‘have full control of our laws, our rules and our fishing waters’. Off the back of the news sterling lost value against most major currencies. GBPEUR dropped to 1.1133 from 1.1198.
Yesterday, the UK Government also announced that they will release a ‘UK Internal Market Bill’ which will be published Wednesday. Early reports are suggesting that this bill could put pressure on the withdrawal agreement which was agreed at the end of last year. European leaders have already commented on the report. Northern Ireland Deputy First Minister Michelle O’Neill made her thoughts know by tweeting that backtracking on the withdrawal agreement would be “treacherous betrayal which would inflict irreversible harm on the all-Ireland economy and Good Friday agreement”.
EU officials have travelled to London today for the next round of the Brexit negotiations. Due to the fireworks that have been let off yesterday, this could be an important week for Brexit and consequently sterling exchange rates. If further negative news is released which pushes the UK closer to a no deal Brexit, we could see sterling come under pressure against most of the major currencies. For further information regarding how Brexit may impact your currency transfer, feel free to contact the trading floor.
In other news, unfortunately for our clients that regularly travel to Greek islands, the UK Government confirmed yesterday that 7 of the Greek Islands will be added to the quarantine list.
It’s a busy week for European economic data. Today at 9am, European GDP is set to be released. Due to the pandemic and like many leading nations around the world, Growth numbers have been on a major decline and this release is set to be no different. Forecasters are suggesting yearly GDP to be released at -15% and the quarterly numbers are forecasted at -12.1%. These numbers are no surprise due to Covid-19, however if the forecasters have it wrong, we could see a volatile trading day for the euro.
On Thursday the European Central Bank are set to release their latest interest rate decision which will be followed by a speech by ECB President Christine Legarde. Interest rates are at rock bottom for the Eurozone, therefore it’s unlikely that any change will materialise. However, Legarde’s speech has the potential to cause market volatility as she will give an overview of the state of the economy in the eyes of the Central bank but should also give some forward guidance.
Over the last 3 months the US dollar has been dropping in value against most major currencies including sterling and arguably losing its status as a safe haven currency. Currently there appear to be three main reasons to why the US dollar is declining.
Firstly, Covid-19 cases in the US continue to climb and currently there have been 6 million confirmed cases and 200,000 deaths. Some would argue that the US could have done more to control the virus and throughout the winter months, there could be a second wave that shuts down the country. A 2nd wave leading to a full country lock down would be devastating for an economy.
Secondly, the US Federal Reserve have cut interest rates more than any other Central bank, which means investors are looking for higher returns elsewhere on their investments leading to the US dollar being sold off. Lastly, the US election is set to take place early November and currently Democrat Joe Biden is ahead in the polls. History tells closely fought elections tend to put pressure on the currency due to the uncertainty that it causes. If you are selling US dollars in the months to come, it may be prudent to contact the trading floor to discuss your options.
The two key data releases to look out for this week are initial jobless claims Thursday and inflation on Friday, both released at 12.30pm. Initial jobless claims has been coming down month on month, since the major spike we saw in March when the US locked down a large part of the economy. If this month reading continues on that trend, this will be seen as a positive for the US. However, Fridays inflation numbers could disappoint, as forecasters are suggesting that monthly figures are set to drop to 0.2% from 0.6%.
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