Pound Sterling Recovers Against Euro but Brexit Talks Expected to Limit GBP

Pound Sterling Recovers Against Euro but Brexit Talks Expected to Limit GBP

Pound Sterling has entered the second day of the week on the front foot and has recovered some of the losses sustained against the euro and the USD over the previous hours. However, with the spotlight increasingly favouring the EU-UK Brexit trade negotiations, it is likely that GBP will be capped in time to come. The pound to euro interbank exchange rate was seen higher by 0.45% at 1.1965 earlier this morning. The gains for the pound followed ongoing market fears concerning the impact of the COVID-19 outbreak on the global economy, with the pound sterling remaining largely immune to sentiment over the disease.

Pound shows immunity to coronavirus outbreak, giving the currency a boost

The pound’s apparent independence from global investment trends could largely be down to the overarching impact that the EU-UK trade negotiations are expected to have on the currency over the course of the year. If the two sides can agree a comprehensive free trade deal by year-end, the pound’s upside potential could be released. However, confrontational negotiations and the ultimate failure of trade negotiations could unleash some significant downside, like that seen in 2019 when markets worried about the chance of a no-deal Brexit.

Trade talk headlines are expected to be plentiful in the coming hours and days as the EU ministers are set to meet today to agree a mandate for the negotiations which are due to commence on the 2nd March. The BBC reports that the document is likely to suggest that a trade deal should be based on EU rules in some areas as a reference point. The key issue between the EU and the UK will be how many of these EU rules is the UK willing to follow in order to secure a free-trade deal. Unhindered fishing rights and the jurisdiction of the European Court of Justice in settling trade issues are also set to be covered within the mandate.

Euro and pound appear relatively unaffected by global factors, but euro more at risk

Both the pound and euro appear to be relatively unaffected by the recent coronavirus resurgence. With both currencies showing no particularly positive or negative reactions to swings in market sentiment which has been driven by the coronavirus fears. However, Nordea Market have lowered their expectations for the euro citing the Coronavirus outbreak as the key factor in the decision. In making this decision, the lender explained that they have adjusted GBP in a slightly stronger direction as the political instability surrounding Brexit negotiations is not a market theme short-term. Whereas China is more important negative news for EUR than GBP.

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