Economic uncertainty weighs on Sterling
Sterling was trading softer against both the EUR and USD on Friday over mounting concerns that the UK economy will continue its struggle to recover from the coronavirus crisis, Brexit uncertainty and the possibility of negative interest rates.
Concerns regarding the speed at which the UK’s economy can recover from the coronavirus crisis were felt last week as the latest GDP reading disappointed market expectations of 5.5% to read 1.8%. We also learned that over half a million jobs had been lost since March due to the pandemic. With the government’s furlough scheme ending next month, economists are cautious that this number could worsen which would likely place additional strain on sterling. Less people at work, will result in less consumer spending which will likely delay the speed at which the UK’s economic completes a full economic recovery.
Brexit talks also failed to yield any progress last week with reports suggesting that the Prime Minister’s chief adviser Dominic Cummings is pressuring UK’s Brexit negotiators to stick to their red lines which is preventing progress. With talks expecting to continue this week as it stands an imminent breakthrough is looking unlikely.
The euro held its ground on Friday and was trading very close to a four month high against the dollar as talks between European Union leaders on a €750 billion coronavirus recovery fund failed to show any progress.
The recovery fund has been a highly contentious issue amongst member states with a clear division between northern and southern European countries. Northern states which include the Netherlands and Sweden have argued that the proposed €750bn package is too large and should come as repayable loans rather than grants.
Despite failing to find common ground for an agreement on Friday, investors remain hopeful that a deal can be struck this week as talks stretch into a fourth day.
Sebastian Kurz the Chancellor of Austria and one of the northern states who has challenged the size and structure of the recovery fund was optimistic about a deal on Monday by stating that although there was a way to go, he was satisfied by the progress made and that it is possible a deal can be achieved.
14:00 – EUR – EU Summit
16:10 – GBP – BoE Haldane Speech
16:10 – GBP – BoE Tenreyro Speech
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