Trends and forecasts in currencies ahead of any UK-EU deal outcome - Bibby's update

Mon 30 Nov 2020
Posted by: William Barns-Graham
Features

bibby currency update

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Last week was relatively quiet in the currency markets, with the pound’s recent rise on the back of announcements regarding Covid-19 vaccines tempered by lingering concerns about the continual prolonging of trade talks with the EU.

The pound’s vaccine-related gains were dragged down on Friday when reports emerged that the UK and EU were still struggling to reach an agreement.

Markets continue to anticipate that a deal will be agreed, following reports that European Commission President von der Leyen is putting on pressure on her chief negotiator Michel Barnier to settle some of the ongoing disagreements.

Sterling dips against the euro

Sterling had a high of €1.1275 towards the start of last week following further announcements of positive trial results for vaccines for Covid-19.

However, as mentioned, the lack of news about a trade deal being agreed with the EU saw fears of a no-deal outcome re-emerge, and the pound consequently slid to €1.111.

Steady versus the dollar

Sterling fared better against the US dollar closing the week comfortably around the US$1.333 level, though it continues to struggle to exceed the $1.34 mark.

Pressure on the dollar

The US Dollar Index (DXY) has slipped over the last few days, declining from highs of 92.5 to open this week at 91.7.

Speculators will be closely monitoring data releases from the US following the Thanksgiving weekend, with some fearing that the holiday could cause another spike in infection rates leading to tougher social restrictions.

Equities shine

As mentioned, equity markets have been the shining light for investors, with many indexes rallying by at around 14% over the last month. In an historic moment, the Dow Jones Industrial Average (DJIA) in the US hit 30k for the first time.

However, markets have dipped over the weekend as the vaccine boost has begun to wear thin, with infection numbers continuing to grow, especially in the US.

Oil rallies

Oil continues to rally, rising from US$43 per barrel to peak above $46, before opening this week around the $45 mark.

Precious metals crumble

However, gold and silver continue to lose value as optimism grows elsewhere in the markets.

Precious metals usually rise in value during periods of uncertainty due to their status as a safe haven investment. However, positive announcements about vaccines are creating more certainty, leading to investments flowing more easily into other assets.

As a result, gold lost around 6% from its opening level last week and silver slid from around US$24.30 per ounce to below $22.

Week ahead

It’s all about Brexit once again for the pound this week. Signals of the talks not yielding a deal could spark a sharp and profound Sterling sell-off.

Economic data will also be a focus for investors, with markets to assess the impact of winter lockdowns in the UK and EU on the back of UK PMI data for November and inflation data from the EU. 

Economic Data 

Highlights this week include:

Today (30 November)      

  • UK consumer credit report
  • German inflation report
  • US pending home sales data
  • Speeches from:
    • ECB’S (European Central Bank) Lagarde and Hakakkarainen
    • BOE’s (Bank of England) Tenreyro

Tuesday      

  • German unemployment data
  • Global manufacturing PMIs
  • EU inflation report
  • OPEC meeting
  • Speeches:
    • Fed’s (Federal Reserve) Powell speaks and Brainard
    • ECB’s Lagarde

Wednesday    

  • German retail sales data
  • EU unemployment data
  • US ADP nonfarm employment change and crude oil inventories
  • Speeches:
    • Fed’s Powell and Williams

 Thursday    

  • Global services and composite PMIs
  • EU retail sales data
  • US weekly jobless data
  • Speeches:
    • Fed’s Bowman

Friday     

  • Construction PMIs
  • US employment report and trade balance