Following the Government’s announcement of their intention to change the Withdrawal Agreement markets appear to be understanding of the plan rather than fearing a charge towards a no deal Brexit. Whilst the talks don’t appear to have progressed a huge amount in the last few days there is reports that Michel Barnier the EU Chief Negotiator suggested an agreement was possible to a meeting of eight Eastern European States earlier this week.
UK Inflation fell to the lowest level in five years yesterday however this did little to undermine sterling as the currency lifted to the 1.10 level against the euro. The gains against the US dollar were also pretty emphatic as the pound found itself knocking on the door of the 1.30 level once more. This is nearly a 2% gain from the end of last week when the GBP/USD level was down towards 1.277.
Today the Bank of England will provide their latest Interest Rate Decision which will be followed by Governor of the Bank Andy Haldane providing a statement and answering questions. There isn’t expected to be any changes to the interest rate with the 9-member committee all expected to vote for the rate to remain unchanged. There has been talk following the pandemic that the BoE would look towards negative interest rates and it’s likely that question will be asked if there is any future consideration towards that. If you’re looking to make a currency transfer tomorrow it is well worth getting in touch with your account manager to discuss your best option.
This morning, the latest inflation data for the Eurozone will be released with no change expected for the month on month for August or the year on year. This doesn’t mean that there isn’t a chance for a shock as anything different to the forecast could cause market volatility.
In the last few days the Eurozone’s tentative recovery has started to raise some questions about how much success can be expected in the near future. Some Governments appear to be back tracking on the pledge to support workers and a real unemployment crisis doesn’t appear to be to far from coming to fruition. Certainly in the southern countries with the summer season coming to a close problems could start to appear.
The deal that the EU agreed to provide €750bn is set to not be given to the countries until the start of 2021 and this package was agreed back in March, it’s not clear how long they expect the pandemic to still have an effect. However, 6 months down the line there is potentially a renewed demand like in the EU for measures to be increased. From a European perspective that might involve trying to generate more funds as the €750bn may not be enough.
It is worth keeping an eye on this situation especially if a Brexit agreement is reached in principle as the Eurozone economies divide between the north and south could get pushed further than ever before.
The Federal Reserve last night pledged to continue its support to the US economy for several years. Following the disruption and challenges caused to households around the US. The Fed leaders said they expect to keep rates near to zero for at least three years and that it’s unlikely the economy will be back where it was pre-pandemic for sometime.
There was however a backtrack on how severe the effect will have been on the economy with only a 3.5% drop expected this year as opposed to a 6.5% which was expected back in June. Furthermore they all expected the unemployment rate to drop to 7.6% which is an improvement on what was previously expected.
Interestingly in polls taken this week American’s still approve the way that Trump has handled the economy over his term, however there is a increase in negative opinions since the pandemic and how he has handled the crisis.
On the Presidential campaign Joe Biden walked into the UK Brexit debate suggesting a US trade deal hinges on the UK’s respect for the Good Friday Agreement. In his words he suggested he will not allow peace in Northern Ireland to become a “casualty of Brexit”. It will be interesting to see if pressure from the US on the UK will change the way in which the UK Government go forward. As it’s quite clear signing a trade deal with the US is one of their main strategies following any successful or failed negotiations with the EU.
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