Sterling Continues Its Fall As No-Deal Risk Increases
The Pound dipped at the open following Michel Barnier’s briefing of EU Ambassadors. Barnier said slow progress had been made, significant differences remained and he could not say whether there would be a deal. Ahead of the New York open the brexit rhetoric was negative, France are allegedly pushing for a no-deal outcome unless there were British concessions and also warned over a veto threat if the EU conceded too much ground. EU Ambassadors also pushed for a firm EU stance while Barnier indicated that he had very little scope for manoeuvre under his mandate and Sterling moved sharply lower.
Tensions continued to increase and confidence in the UK outlook remained very fragile despite positive news on the Pfizer vaccine deployment. Sterling continued to lose ground with lows below 1.3300 against the Dollar while the Euro strengthened to 5-week highs around 1.1007. Sentiment stabilised on optimism that a deal could still be secured at the end of this week. Optimism over a global recovery also provided an element of protection with Sterling back close to 1.3400 against the weak Dollar while the Euro retreated slightly to near 1.1050.
Elsewhere, GBP/USD dropped 0.1% to 1.3443, having climbed as high as $1.35 on Thursday on a report the U.K. and EU have made progress on fishing quotas, raising hopes that a post-Brexit deal is within sight.
However, some of this optimism has retreated after U.K. Business Secretary Alok Sharma said Friday that these trade talks are in a “difficult phase”, and after France threatened to veto any deal it didn’t approve of, suggesting there was still plenty of negotiation to take place.
“Markets are still assessing how much this is simply part of the negotiating strategy,” said analysts at ING, in a research note, “but with any deal having to be agreed within the next few days it is no surprise investors (who have retained an optimistic tone on Brexit so far) are getting increasingly nervous.”
The Euro against the Dollar prolonged this week’s strong positive move and continued scaling higher on Thursday amid sustained Dollar selling bias. The optimism over the rollout of a vaccine for the highly contagious coronavirus disease and increasing bets for more US fiscal stimulus revived hopes for a swift global economic recovery. The $908 billion bipartisan COVID-19 aid package is a major reason for the pair pushing higher, as it is weighing heavily on the Dollar’s safe haven status and as such moving money flow out to risker assets.
The single currency also shrugged off softer than expected Eurozone Services PMI numbers, which pointed to a significant decline in the business activity. Nevertheless, the pair rallied to the highest level since April 2018, albeit overbought conditions prompted some profit-taking near the 1.2175 region.
As of writing, the Euro currently trades around the 1.2160 mark against its US counterpart.
Data to watch
14:30 – USD – Average Hourly Earnings
14:30 – USD – Non-Farm Employment Change
14:30 – USD – Unemployment Rate