Sterling jumps in value after UK-EU trade talks extension – Bibby FS' weekly currency update

Mon 14 Dec 2020
Posted by: William Barns-Graham
Features

bibby currency update

A week of missed deadlines and dinner meetings in the UK-EU trade negotiations caused some volatility in the currency markets, with the pound enduring one of its most topsy turvy weeks for a while.

Fears of a no-deal have slightly subsided on yesterday’s news (13 December) that the talks will continue over the festive period, despite the transition period coming to an end on 31 December 2020.

This has led to a jump in value for the pound to begin this week.

Topsy turvy week for Sterling

The mood around the UK-EU trade talks worsened throughout last week and the value of the pound fell in response.

Having opened the week at US$1.343 and €1.106, it fell to as low as $1.322 and €1.094 in the early part of the week.

On the announcement that Prime Minister Johnson would dine with EU Commission President von der Leyen on Wednesday, the pound did retrieve some of its losses against both currencies.

However, once it emerged that a deal was not secured over dinner, it went as low as $1.3135 and €1.0835, leading to rumours that the pound could even reach parity against the euro in the event of a no-deal.

However, since Sunday’s announcement that talks could continue over the festive period, the pound has retrieved value, opening this week at $1.34 and €1.1035.

Dollar continues to struggle

The US dollar continues to struggle as its safe-haven status becomes less important due to markets being buoyed by developments in the distribution of vaccines for Covid-19.

Disappointing US jobs data also contributed to the US Dollar Index (DXY) remaining pinned between 90.65 and 91.20.

This is significantly down from highs of around 102 in March this year when markets were reeling with uncertainty due to the pandemic.

Strong Euro

The Euro, on the other hand, continues to strengthen, though the European Central Bank (ECB) has not yet indicated whether it will take measures to control this.

A strong Euro could hamper the ECB in its primary task of achieving an inflation target of 2% or under. The Euro last week peaked at US$1.216 – its highest level since April 2018.

Oil

Oil also saw gains as optimism around the Covid-19 vaccine spurred hopes of an increase in demand. This saw the price of a barrel of US WTI crude oil rise as high as US$47.70 last week.

Bitcoin

Bitcoin had a volatile week, sliding from an opening level of around US$19,400 to as low as $17,620, before surging back to around $19,000 before the start of this week.

Week ahead

Headlines from the UK-EU negotiations will again lead to volatility in the value of the pound this week unless an outcome is reached either way in respect to a deal.

Monetary policy meetings held by both the Federal Reserve (FED) and the Bank of England (BOE) could also have an impact though markets don’t expect significant changes, with interest rates already at record lows.

Economic Data 

Highlights this week include:

Today (14 December)

  • Bundesbank’s monthly reports
  • EU industrial production data
  • Speech:
    • ECB’s Panetta

Tuesday      

  • UK employment report
  • US industrial and manufacturing production figures
  • Speech:
    • ECB’s Lane

Wednesday   

  • US Federal Open Market Committee (FOMC) Monetary Policy meeting
  • UK inflation report for November
  • Global flash PMI’s
  • US retails sales and crude oil stocks data
  • Speeches:
    • ECB’s De Guindos and Schnabel 

Thursday    

  • EU Inflation report
  • BOE interest rate decision
  • US weekly jobless data
  • Speeches:
    • BOE’s Broadbent
    • ECB’s Schnabel and De Guindos

Friday     

  • UK retail sales and CBI survey data
  • Speech:
    • ECB’s Enria