Sterling Jumps On Resumption Of Brexit Talks
In comments made yesterday ahead of the US session, EU Chief Negotiator Michel Barnier reiterated that the EU was willing to intensify trade talks and ready to discuss all legal texts. On the back of those comments, the market adopted an optimistic stance and pushed Sterling higher. These reports were confirmed late in Europe with formal negotiations resuming next week.
Brexit considerations dominated and Sterling jumped to 6-week highs above 1.3150 against the Dollar and to 1.1095 against the Euro.
The UK reported the highest number of daily coronavirus cases at over 26,000 in the latest 24-hour period and there were further concerns over major tensions over local restrictions. Concerns over the economic recovery will continue and Chancellor Sunak is expected to introduce further business support measures later today.
The US currency was undermined by further speculation that there would be further US fiscal stimulus measures. Markets were expecting that the US inflation rate would increase due to support from higher spending while the Federal Reserve would cap nominal yields through sustained bond purchases. In this environment, real yields would remain negative and tend to undermine the US dollar.
Commodity currencies made significant gains during the day and the dollar overall declined sharply to 6-week lows amid longer-term fundamental concerns.
Fed Governor Brainard stated that the US recovery was highly uneven and highly uncertain. Premature withdrawal of fiscal aid would risk entrenching recessionary dynamics. According to Brainard, US rates are also likely to stay below neutral for a period after lift-off.
The Euro is flashing red on Thursday as the anti-risk Dollar is drawing haven bids on reports of meddling in US elections and fading prospects of a US fiscal stimulus deal. The pair are currently trading just above the 1.1850 having rejected the 1.1880 level during the Asian trading session
The Euro docket is quite light today with just the German Gfk Consumer Confidence scheduled for release. A big miss on expectations would renew growth concerns and add to bearish pressures around the single currency.
Data to watch
10:25 – GBP – BOE Gov Bailey Speaks
13:30 – USD – Unemployment Claims
15:00 – USD – CB Leading Index