Well… It’s been a chaotic twelve months for the pound! We’ve had three missed Brexit deadlines, two Prime Ministers and a general election. This has caused the pound to be highly volatile, striking a three-year high and a decade low in the last twelve months! Due to the mid-week holiday, trading levels have remained low. With the absence of any major Brexit headlines in recent days, the pound has trended higher this week. Also, Monday has seen strong UK mortgage figures up from 41,300 to 43,700 in November.

The euro spent most of 2019 on the back foot as the economy has looked fragile, with stubbornly low inflation and fears of a German recession. Let’s not forget the threat of a no-deal Brexit and political issues in Italy which led to the collapse of its coalition government.

The US has shown remarkable resilience in 2019, benefiting from it’s safe-haven status partly fuelled by Brexit and global trade tensions. The US has seen three rate cuts in 2019 acting as a cushion from the global economic slowdown.

Upcoming in 2020:

Yesterday we saw the pound make gains, then fall and then make gains once again after rumours coming from Brussels that things remain uncertain.

Brexit Uncertainty Looms Over the Pound

Brexit uncertainty is set to darken the pound in 2020 in spite of Mr Johnson’s majority government. Boris will leave himself with 11 months to negotiate the UK’s future trade relationship with the EU. With such little time, the threat of a no-deal Brexit will hang over the UK limiting any significant gains. Johnson’s revised version of the EU Withdrawal Agreement Bill, which was backed by the House of Commons last Friday, forbids an extension of the standstill transition period that’s due to end alongside the 2020 year. The bill is on course to become law by January 09.

Pantheon Macroeconomics has told clients the pound will likely fall in the second half of 2020 even though the firm anticipates that a ‘no deal’ Brexit will be avoided. It says fears of a trade relationship governed by World Trade Organization (WTO) rules will likely reach a peak in the second half of 2020 and this will weigh on the UK currency.

Tombs from Pantheon predicts the pound will weaken against the USD and EUR in 2020. He predicts the pound will end the year at 1.25 against the USD and 1.15 against the euro. Tombs is not alone in his predictions for the pound as a number of major banks are also looking for sterling to fall back below its October levels including Barclays, J.P. Morgan and Westpac. Deutsche Bank and J.P. Morgan both see the exchange rate trading below the 1.10 level against the euro by the end of 2020.

The Bank of England is expected to cut the interest rate at some point in 2020 now that the UK’s withdrawal is dealt with, this could cause volatility for the pound.

Eurozone Economy Under Pressure

The EU will remain under pressure for the foreseeable future as trade tensions are likely to continue with the US and weak economic growth in the Eurozone continues. The spotlight will be on the European Central Bank’s plan for monetary policy and whether Christine Lagarde will fly the flag for more stimulus or fiscal support.

 

US Elections and Trade War Negotiations

In the US, the country will gear up for the 2020 presidential elections (03/11/2020) and the continued US-China trade negotiations. Reports have suggested a deal is all but signed off between the two nations as Peter Navarro from the White House recently stated “We’ll probably have a signing on that within the next week or so - we’re just waiting for the translation,” Navarro said in an interview with Fox News.

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