FX markets have begun their first proper trading day secure in the knowledge that the United Kingdom will have a trade deal above WTO standards with respect to the EU-27 come 1st January. So far there hasn’t been a huge sigh of relief evident within the Pound but it is evident that, in combination with Trump signing a fiscal stimulus bill to prevent US government lockdown, markets are embracing less defensive conditions this morning. The Pound did rally upon confirmation of a deal on Thursday afternoon. However, upward momentum was capped and prices ultimately rejected it seems at 1.36/1.115 versus the Dollar and Euro respectively.
The lacklustre move in the Pound comes down to two things. Firstly, the prospect of a deal was largely priced in with the real risks to GBP pricing lurking towards the downside should a no-deal have materialised. Despite GBP being off of its Thursday highs, in comparison with where we might have been trading this morning should a no-deal have become apparent last week, GBP is solid. The second reason is that the deal itself is a hard form of Brexit and provides for tariff free (and limits thin non-tariff barriers to) trade only. The deal does not cover services, including financial services. The deal also makes no attempt to preserve elements of the customs Union and single market that are supportive of economic growth.
The market this morning is also taking note of astronomically high rates of coronavirus infection in the UK and reports that hospital admissions are higher than those in the first wave. With much of the UK already in the highest tier of infection, the expectation of a bumpy road ahead with respect to the health crisis and its knock on implications upon the economy have GBP on the back foot. The deal should still, however, provide a positive backdrop for Sterling for some time to come. The deal whilst not being what all may have hoped for does provide an immensely important legal backdrop and starting point upon which to shape UK trade with respect to the Union whilst respecting the result of the 2016 vote.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Japanese Yen With JPY at a new 34 year low versus EUR, the market is set for an ambush by the Bank of Japan if it acts today at the end of their Policy Meeting to support the Yen. The reason that the market is susceptible is because it has convinced itself that the BoJ […]
Milan, Italy The City of Milan has a late night noise problem and so it has acted unilaterally to resolve it-Italian style. A ban on the sale of take away food including ice cream and pizza after midnight is being imposed to protect the “peace and health of residents.” Here in the UK late night […]
British Pound Reports that the UK may cut its interest rates before the USA cut their interest rates were the final straw this past week for Sterling. A slew of less than helpful inflation, employment and finally retail sales saw GBP weaker , but then the suggestion that with the background of that less than […]