After waiting 4 long years since the UK has decided to leave the European Union and several deadlines missed, a deal had finally been made on Christmas Eve and has taken effect from the beginning of this year.

One of the main disagreements during the trade negotiations was the dispute over fishing rights. Despite having a deal on fishing, this did not mean that this agreement is in the best interest of everyone, particularly with the UK. The UK hoped that as soon a deal has been agreed, they will take full control of its waters, however this was not the case as it does not provide anything that takes immediate effect as EU boats will continue to fish in UK waters for some years to come. The UK and the EU has a 5 and a half year transition period. This transition period starts with the EU maintaining their current access to UK waters and will be reduced in increments, bringing the EU’s access to UK waters down to 25% from 33% at the end of its transition period. When this period ends the UK could completely revoke the EU’s access to its waters but if this were to happen the EU could then place high tariffs to fishes that are exported to the EU which would make it very difficult to sell to its neighbouring countries.

Nonetheless a deal has finally been agreed which had many analysts predict that sterling would get stronger, however with a third national lockdown that was announced by the Prime Minister Boris Johnson earlier this week, the pound has remained near the same trading levels as before the Brexit Agreement was announced. The GBP/EUR exchange rate at the time of writing sits at 1.1135 on the interbank exchange.

UK Covid Cases Rise

National Lockdown

As new cases of the COVID Variant rapidly increases, the Prime Minister was yet again forced to put another national lockdown, which did cause an initial GBP sell-off. According to the Prime Minister, the aim was to start easing the lockdown by the end of march and to return to the local tier system, this would give the opportunity to control the virus and to have more people vaccinated.

With this third lockdown in place, we will see further job losses and businesses shutting down which would take another massive blow for the UK economy. One of the large businesses that has recently closed due to the pandemic was the flagship store of Topman and Topshop in Central London which goes to show how much impact this virus has affected the economy.

Eurozone Economic Confidence Returns

The eurozone has seen an increase in economic confidence as it continues to grow from December. This is highlighted with the manufacturers as they show a great strength against the increase of the pandemic. The European Commission Sentiment Index has increased by 2.7 points against last month’s 87.7 with the confidence within consumers as well as the industrial sector.

In addition, the economy has come into a second wave of lockdown at a vigorous time. Spain as well as Italy has seen on of the greatest gains in confidence back in December. The industries that have been affected most by the governments restraints are the Service providers as well as retailers.

Despite a return to confidence, Eurozone data on Thursday was underwhelming overall, with German Industrial Orders much stronger than expected. Orders were rising at a monthly pace of 2.3% versus expectations for a -1.2% drop. This was outweighed by inflation numbers for the Eurozone in December with headline inflation coming in at -0.3% YoY, versus expectations for -0.2%. Inflation has been an issue for the European Central Bank. This has caused the EUR to slip during Friday morning’s trading.

The largest economy within the Eurozone is Germany, however, they have also been highly affected by the governments restrictions as this week most stores, restaurants and other non-essential facilities remains shut till the end of January as the vaccination begins in a very slow pace. Many wonder when the businesses can go back to normality and start the recovery process.

The European economy is still finding the best way to fight the virus and start the recovery process. With a slow start to the vaccine roll out, we could see the euro being one of the weaker currencies in comparison to the other major currencies. If they put great urgency to the vaccine roll out, that’s when it could push the euro back up against its major competitors.

Will GBPUSD Break Above 1.45?

US Dollar Near 20-month Low Against Sterling

The pound’s performance was given a helping hand by dollar weakness, which has been weighed down by the US Federal Reserve’s loose monetary policy - move that is designed to combat the economic damage caused by the pandemic. The USD has also seen weakness due to its slow rollout of a COVID-19 vaccine with Reuters quoting, ‘vaccine rollout could cause U.S. dollar to fall 20% in 2021’.

Trump Supporters Cause Chaos at US Capitol

Thousands of supporters of the US President Donald Trump stormed the US Capitol on Wednesday, surrounding the building and causing chaos after Trump encouraged his supporters to fight against the ceremonial counting of the electoral votes to president elect Joe Biden’s Victory. The attack witnessed a total of four people die. Lawmakers resumed the session after the police managed to remove the mob. Democrat Joe Biden’s Victory was confirmed by a joint session chaired by Vice President Mike Pence on Thursday 3:30 am (8:30 GMT), who defied Trump’s call to overturn his defeat in the November Election. Pence also confirmed his own loss to Vice-President Elect Kamala Harris and said, “dark day in the history of the United States Capitol”. Trump finally pledged an “orderly transition” of power.

With the events that happened to the capitol on Wednesday, the presidential power has shown greater strength towards the president-elect as it clearly shows that Trump supporters cannot accept defeat and would go to great heights to try and overturn the decision. The more important news for investors was that the democrats will soon control both chambers of the US congress (as well as the US Democracy) can benefit from the disruption at Capitol Hill as Trump lost a lot of support within the Republicans which makes further confrontations between the administration and a team around Trump, including loyal political allies less likely.

For a final time, Trump was able to delay Biden’s official transition by inciting a violent insurrection. It is certain that the Capitol riots will define Donald Trump’s Legacy and will forever be remembered as a dark day in US history. At the same time, it will also be a turning point and believe that Biden will be able to take power with no further major disruptions.

With the presidential transition only weeks away, things are definitely looking up for the president-elect and if it all goes well, this could be start of the US Economy’s recovery.

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