- MiFID Crackdown Could See GBP Fall Further as UK Business in Europe Could Struggle
- USD Strength Overcomes Both Pound Sterling and Euro
The EU looks to crackdown on the UK following headlines suggesting that it would seek to impose tougher financial regulations on the City of London in the upcoming trade negotiations. As a result, GBP has tumbled as this could further complicate UK financial firms’ access to do business in Europe. The EU has noted that European financial regulators would look to toughen up on an existing series of regulations called MiFID II, and plan to overturn the concessions they made to the UK. Meanwhile, both the Euro and GBP are down against a strong performing USD which may also explain the two’s weakness over the course of the trading week. The dollar’s strength comes after several overperformances in US economic data which has bettered its peers.
With the headlines of the EU suggesting an adjustment in the MiFID II regulations, investors have become worried that these changes may negatively impact UK businesses operating in the European market. MiFID was implemented in November 2017 and shook the European financial markets through the introduction of several policies governing research spending, record keeping and trading in stocks, derivatives and commodities. The stricter regulations have been criticised for increasing the difficulty of doing business and creating significant costs for the financial industry. As a result of this message, GBP lowered. However, it may not be the MiFID news that has lowered GBP as a whole, but rather the signal that has been sent out by the EU – in that they are willingly going to try and undermine the UK’s financial sector in the next set of trade talks. Which makes the MiFID news just one point in a much larger picture for the UK.
Meanwhile, as GBP and EUR both fail to impress this week, part of the blame falls down to the strength of the US dollar. The recent economic success of the United States has seen its currency rise to the top of the rankings this week with the currency recording gains against all of its major peers. A large percentage of its gains have come after the outbreak of the coronavirus which saw USD labelled the preferred safe haven currency as market risk appetite drained the strength from risk-correlated currencies like CAD and AUD. Further to this, the other two ‘safe haven’ currencies the Yen and Swiss Franc both belong to countries with sizeable trade exposure to China – where the outbreak started. USD expects its labour market report on Friday, the market is looking for the non-farm payrolls report to show an increase in figures. But a disappointment could allow the GBP/USD exchange rate to recover.
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