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Brexit Talks In Final Phase

Brexit Talks In Final Phase

GBP

Michel Barnier stated that progress had been made, trade talks were in the final phase and that a deal could be reached this week. The Pound pushed to 30-month highs above 1.3600 against the Dollar with the Euro moving above 1.1111.

The Bank of England made no changes, interest rates stay at 0.1% and the asset-purchase programme continues. Although the economy had performed slightly better than expected, the impact of coronavirus restrictions was likely to have a larger impact during the first quarter of 2021. The bank warned that as the outlook was so uncertain it is prepared to ease policy if needed and strongly hinted at monetary easing if there was no Brexit trade deal; Sterling edged lower.

EU Commission President Ursula von der Leyen welcomed all the progress made across issues, but added big differences remain, especially in fisheries. The UK side continued their pessimistic tone and reiterated that no deal was likely unless there was a substantial change in the EU position. Sterling retreated after the UK comments and the Euro trades near 1.1050. 

UK consumer confidence data recovered slightly to -26 for December from -33 previously. Sterling opens just below 1.3550 amid a slight dollar recovery with November UK retail sales declining 3.8% amid covid restrictions.

 

USD

The Philadelphia Fed manufacturing index declined to 11.1 for December from 26.3 previously and below market expectations of 20.0. There were solid increases for new and unfilled orders on the month and employment posted a further gain while pricing pressures eased sharply. Housing starts increased to an annual rate of 1.55mn for November from 1.53mn the previous month with building permits increasing to 1.64mn from 1.54mn.

US initial jobless claims increased to 885,000 in the latest week from 862,000 previously and well above consensus forecasts for the second successive week with expectations centred on 800,000. Continuing claims declined to 5.51mn from 5.78mn the previous week, but the data maintained reservations over the labour-market developments.

The Dollar remained on the defensive with on-going expectations of a very supportive Fed policy following Wednesday’s dovish statement. Overall sentiment for the US currency continues to be weak, but there was a slightly more cautious tone on Friday with underlying pressure for a limited correction after sharp losses.

 

EUR

The Euro is feeling the pull of gravity on the Dollars broad based recovery. The losses however, could be reversed if the German IFO Expectations Index for December beats estimates. 

The currency pair is currently trading around 1.2245, having hit a 32-month high of 1.2273. 

A number of analysts are noting the US currency looks quite oversold with market positioning somewhat skewed a little too bearish and ready for a bounce.

A big beat on German data is needed to save Euro bulls. The IFO Expectations index, an early indicator of current conditions and business expectations for the next six months, is expected to tick higher in December. An above-forecast reading  could again help the Euro ignore Germany’s recent decision to impose the economically-painful coronavirus lockdown and reverse losses seen at the time of writing. 

As of writing, the Eurocurrently trades around the 1.2255 mark against its US counterpart. 

 

Data to watch

9.00 EUR – IFO German Business Climate

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