The pound made good gains yesterday and once again pushed through the 1.18 barrier versus the euro, despite focus still being placed upon the future UK/EU trade agreement negotiations before the December 31st transition deadline.
The root of the issue with the trade negotiation is that with the UK out of the Single Bloc, but trying to avoid a ‘no-deal’ scenario, the trade agreement is of such importance to the economies of both sides that the UK could in fact default to a no deal scenario at the end of its transition phase. This uncertainty could continue to dampen UK business as the path to global expansion and possible investment returns remains cloudy, which could continue to see the UK economy in stagnation.
UK Gross Domestic Product figures released this morning reiterated this ongoing trend, as growth for Q4 2019 has been reported at 0.0%. The pound actually gained some ground on the back of this data release as the fears of a further decline were quashed. Interestingly the Financial Services sector managed only a meagre 0.1% growth although this was enough to offset the 0.8% decline in industrial production quarter on quarter.
From the Eurozone, Italian Industrial production figures were posted at a two year low with many sectors in the Italian economy posting a decline, and counteracting the wave of more positive sentiment from the German production figures last week.
For Germany, it remains challenging for the Single bloc’s largest economy to remain focused as political uncertainty continues to ripen in the run up to Angela Merkel’s retirement. Annegret Kramp-Karrenbauer, the minister of defence, took over as leader of the Christian Democratic Union (CDU) in late 2018 and was widely viewed as Merkel’s preferred candidate. Her resignation has been brought about by a recent regional election result which would have forced the CDU to cooperate with the far-right AfD to bolster its political power. This was a step too far for Annegret.
The political agenda for both the UK and EU continues to dominate the headlines and put pressure on the GBPEUR currency pair on both sides. As we consolidate within a 1.1750-1.1850 interbank range, eyes should be on the wider 1.15-1.20 trading levels to contain the moves for now, with volatility expected to continue.
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