- EUR/GBP is currently trading just below highs of the day just above the 0.9100 level.
- The pair still trades with substantial losses on the day, however, amid relief that Brexit talks were extended past the weekend.
EUR/GBP has reversed sharply higher from lows of the day just under 0.9050 and is currently consolidating at highs of the day just above the 0.9100 level. However, the pair still trades significantly below last Friday’s close which was around 0.9160, and thus still trades with losses of around 0.4% or just over 30 pips on the day.
GBP boosted by Brexit relief
UK PM Boris Johnson and EU Commission President Ursula von der Leyen agreed on Sunday that it would be responsible to continue talks. Some had feared that in absence of any major breakthroughs in negotiations prior to Sunday, there was a risk that the two might have called of talks, opting instead to focus on no deal planning. Thus, this immediate risk of a complete breakdown of talks has been averted and this has given a boost to GBP.
However, aside from the fact that both the UK and EU seem keen to continue talks right up until the last minute, there isn’t that much else to be optimistic about. One UK reporter tweeted that “talks remain difficult and we have not made significant progress in recent days, despite efforts by the UK side to bring energy and ideas to the process”, citing sources.
Thus, it is perhaps unsurprising to see EUR/GBP pull back from lows beneath 0.9050 given the fact that a deal does not actually seem to be any closer. Also potentially weighing on sterling versus the euro is the news that London is to imminently be placed in the highest tier of Covid-19 restrictions in the UK, amid a growing outbreak of a new strain of Covid-19 which is reportedly more virulent than others.
Still, its not as if the Eurozone hasn’t had its own bad Covid-19 news on Monday as well; Germany and the Netherlands will both enter into national lockdowns immediately through until January, so perhaps this evens things out as far as EUR/GBP is concerned.
Looking ahead, the primary driver of the cross is set to continue to be Brexit; markets must now watch the clock tick down until 31 December, after which the UK and EU will be trading on WTO terms if they fail to secure some kind of free trade deal. Failure to get a deal by then will of course be bad for GBP, but it already seems as though both sides might be gearing up to continue to negotiate on the future relationship past this date and just put up with the short-term pain of economic disruption.
The pair is unlikely to pay too much attention to this week’s tier 1 data releases out of both the UK and EU, though it will be worth paying attention to UK jobs data (Nov) on Tuesday, UK CPI (Nov) and EU and UK Flash Markit Manufacturing PMIs (Dec) on Wednesday, followed by UK retail sales data (Nov) on Friday.
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