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London RationalFX

RationalFX : Optimism surrounding Brexit edges sterling higher

RationalFX : GBP-USD enjoyed a strong day of trade yesterday and continues the run off from this morning trading at 1.3272. GBP-EUR also maintained its levels and opened today over 1.1150.

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GBP

Reports are now suggesting a deal is close and we could expect the announcement as early as next week. Although, it must be noted, all outlets reporting this news include a caveat stating that ‘the risk negotiations fall through is still apparent’. While both sides may report a deal is close, we have been in a similar situation for weeks. Fishing rights and state aid, amongst other points, are still highly disputed. Additionally, we know both sides are not one to shy away from extending a deadline. It begs the question, could we see another extension to the Brexit saga? Reports suggest the deadline to reach a deal could be the next EU council meeting on the 10/11th December. If no agreement is announced by this point, then a no deal Brexit could become a reality on the 31st of December.

UK CPI data released this morning showed an increase to 0.7% compared to last month’s 0.5%. While traditionally this reading may have led the Bank of England to consider increasing interest rates, considering current circumstances we will not see any changes in the near future.

EUR

Tones from the ECB remain dovish, keeping the euro lower this week. Christine Lagarde spoke yesterday and continued to reiterate that the eurozone will face a challenging 2021. She also mentioned that her plans to increase stimulus are a major headwind for the euro.

Additionally, Angela Merkel may be proposing tighter restrictions in the coming weeks to curb a rise in new cases. With the powerhouse of the eurozone potentially going back into a form of lockdown, it is hard to see much upside for the euro in the coming weeks.

USD

With the news of two new potential vaccines, investors are moving away from the safe haven USD and have parked their funds in riskier assets. This has led to a weakening dollar over the course of the week. Covid cases are once again on the rise and the need for further stimulus is now apparent as ever. Jerome Powell issued a statement yesterday highlighting that the Fed will use all their tools to support the economy for as long as they need too. US retails sales also came in at a marginal 0.2% gain from the previous months reading, reiterating the fact that unemployment will be something the Fed needs to address soon. 

Key announcements

13:30 GMT: CAD Consumer Price Index Core (YoY)(Oct)

16:30 GMT: BoE’s Governor Bailey Speech

Source : ETFWorld.co.uk

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