- EUR/GBP continues to trade sideways either side of the 0.9080 mark as trade quietens down into the year-end.
- Brexit, international trade and investment deals, Covid-19 lockdowns and vaccine rollouts all likely to drive the pair in 2021.
EUR/GBP has gone sideways or has at the very least been caught between relatively thin 0.9060-0.9090 parameters, for most of the last 24 hours.
Trade has been choppy elsewhere in FX markets (USD, in particular, has seen some pretty decent swings in sentiment), but with Brexit out of the way and many European participants still away for Christmas and New Year holidays, trade in the EUR/GBP pair appears to have died right down.
Traders take a breather and mull themes to come in 2021…
As price action quietens down, traders will be taking the opportunity to consider some of the themes most likely to drive price action in EUR/GBP at the start of 2021.
Firstly, Brexit is still on the mind of the market; it looks as though the deal agreed last week will not face any hiccups as it is authorised (initially) by EU leaders and UK Parliament on Wednesday. Even the most diehard Eurosceptic Tories have indicated their support for the deal, which is consistent with UK sovereignty according to the European Research Group. Hiccups could come in January when the EU parliament gets its chance to vote on the deal. But amidst the chaos of Covid-19 lockdowns, the incentive to not add further uncertainties reduces the risk that the EU will reject the deal.
But even when the deal is voted into law on both sides of the English Channel, that is not the end for negotiations; there is not yet a deal on services, nor data, nor Gibraltar. All will need to be addressed and developments will be worth watching, though will probably take a back seat as far as EUR/GBP is concerned.
Secondly, the Covid-19 pandemic continues to rage on across the continent; in the UK, UK press is speculating that stricter lockdown measures akin to a “Tier 5” might be introduced with scientific advisors warning that Tier 4 will not be enough to curb the spread of the virus amid the onset of the newer, more virulent strain. Speaking off, the new strain is being detected in greater amounts on the mainland now and is remains to be seen whether this will trigger a further acceleration in the spread of the virus, or indeed is families getting together for Christmas will have increased the R rate.
While more lockdowns might well be on the way, mass vaccination programmes as also underway. The UK has a sizeable lead on the EU in that regard, having approved the Pfizer vaccine over a month ago (versus the EU who only approved the vaccine on Sunday) and looking likely to approve the Oxford University/AstraZeneca vaccine this week (versus the EU, which is reportedly unlikely to approve the vaccine in January). If vaccines are as effective as hoped, this tees the UK up for a comparatively early easing of lockdowns, perhaps by early Q2 2021, something which could be argued would be bearish for EUR/GBP.
Elsewhere, the EU and China have reportedly reached an agreement on regulating investment in each other’s economies, with a formal announcement likely to come later on in the week. Such an agreement is likely to be positive for EU growth in 2021 and beyond and might well have helped EUR this week. UK/Sino relations remain comparatively sour given bickering between the two countries with regards to the situation in Hong Kong and over the ban on Huawei.
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