11/09/2020

Fear of a no trade deal weighs on the pound


GBP

Sterling extended its losses falling to multi-month lows against both the euro and dollar yesterday amid fears that the UK and EU will fail to agree a Brexit trade deal.

The sharp move lower follows an emergency meeting yesterday between UK and EU officials who discussed the implications of Britain trying to force through a piece of legislation to supersede aspects of the Withdrawal Agreement. According to EU officials trust between both sides have been seriously damaged leaving a UK-EU trade deal in jeopardy.

It is understood the EU gave the UK government an ultimatum to drop plans to pass its controversial law which undermines the Withdrawal Agreement by the end of September or face legal action for breaking international law.

The news weighed heavily on sterling which fell by 1.1% against the dollar and 1.7% against the euro to multi-month lows.


EUR

The euro rallied yesterday in the wake of the European Central Bank’s September policy meeting.

Interest rates were kept on hold, however, comments from European Commission President Ursula Von Der Leyen increased demand for the euro. In reference to the recent bout of euro strength, Von Der Leyen commented that although the rise in the euro had been discussed, the Governing Council do not target the exchange rate. Reading between the lines, traders interpreted these comments as the EU would be comfortable with the rate going even higher before acting.

This is significant as weeks prior the euro had fallen due to comments made by the ECB’s Chief Economist Philip Lane, who expressed concerns at the recent rally in the euro. Markets had been half expecting the ECB to follow Lane’s dovish comments, instead comments from the ECB had a hawkish tone.


Key announcements

  • 07:00 – GBP – Manufacturing Production (MoM) (JUL) Increased to 6.3%
  • 07:00 – GBP – Industrial Production (MoM) (JUL) Increased to 5.2% from 4% consensus
  • 07:00 – GBP – Gross Domestic Product (MoM) (JUL) Fell to 6.6% from 6.7% consensus
  • 07:00 – EUR – Harmonized Index Consumer Prices (GER) (YoY) (AUG) Expected -0.1% consensus -0.1%
  • 13:30 – USD – Consumer Price Index ex Food and Energy (MoM) (AUG) Expected 0.2%
  • 13:30 – USD – Consumer Price Index ex Food and Energy (YoY) (AUG) Expected 1.6%


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