24/08/2020

Sterling falls as Brexit talks stall


GBP

Sterling moved lower on Friday following the news that UK-EU Brexit trade talks have failed to yield any significant progress. The news resulted in sterling depreciating by more than 1% as EU chief negotiator Michel Barnier signalled that at this stage a trade deal looks ‘very unlikely’. Barnier added that he was ‘disappointed’ and ‘concerned’ by the lack of progress indicating that the EU would have liked an agreement in place by October. His counter party UK’s chief Brexit negotiator David Frost echoed Barnier’s comments stating that ‘little progress’ had been made with differences on fisheries policies and state aid.

Furthermore, sterling was not helped by news of Britain’s public debt exceeding 2 trillion pounds for the first time in July as the government ramped up public spending to cope with the coronavirus pandemic and a fall in tax revenues.

Despite the negative Brexit news flow on Friday, the latest UK PMI data offered a glimmer of hope for the UK economy and its attempts to recover from the economic fallout caused by the pandemic. The PMI data showed a seven year high of 60.3 from a previous 57 in July as British businesses re-opened following the easing of lockdown restrictions.

With the UK’s large budget deficit, Brexit uncertainty and poor economic growth the pound is likely to remain highly volatile in the coming weeks. The next set of Brexit talks are set to resume on the 7th September.

USD

The dollar rallied against the euro on Friday for the first week since mid-June as US data showed a strong pick up in US business activity.

US business activity increased to the highest since early 2019 this month as companies in both the manufacturing and services sectors saw a resurgence in new orders even as new COVID-19 cases remain high across the country.

The recovery in the dollar began on Wednesday after the Federal Open Market Committee released minutes from its last meeting, the tone of which was more dovish than expected.

Key announcements

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