Sterling is currently in a very vulnerable position. There has been in a rise in COVID cases around the country and Boris Johnson has already made the move to stop public gatherings above six people. If we continue to see cases rises we could see further lockdown measures which will have an impact on the economy.
The key issue however remains to be Brexit. There has been very little process in recent talks with Barnier at one point stating he was not prepared to negotiate any further. The main point of contention is fisheries and we still seem to be no closer to getting the matter resolved.
Johnson has stated he wants deal in place by 15th October which is a tall order to say the least considering the current state of affairs. You have to ask if Europe want to give us a deal and whether it is in Brussels interest to give the UK a favourable one? Could it be that Barnier has a mandate and he intends to stick to it?
It could be the case Brussels are making the process as difficult as possible in order to warn off any other member countries following suit, preventing a domino effect.
Boris has already started preparing the country for a no deal scenario stating that a no deal is not that bad. Sterling is likely to suffer if a deal fails to be agreed. Commerz bank have predicted 1.02 on GBPEUR. The market moves on rumour as well as fact and the fact that the historic average is 1.33 and we now sit in the 1.10s says a lot.
How the market will react to a deal is an interesting question. If a deal is agreed then it is likely it will not be up to previous expectations considering the limited amount of time remaining to get a deal over the line. It may be the case that the market will react depending on the quality of the deal, if it is a poor deal then do not expect any great shakes.
With Johnson also attempting to pass a bill that would breach international law, negotiations could become even more difficult and with such a limited time frame there seems to be a high probability of a no deal scenario panning out.
Upcoming Data Releases
Yesterday saw the release of UK average earnings which landed better than expectations at -1% against the predicted -1.2%. And also claimant count change showed a drop in the number of unemployed claiming benefits from 94k to 74k.
This morning we saw the release of Consumer Price Index (CPI) data. CPI is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of GBP is dragged down by inflation, CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative.
CPI saw an increase against predictions of 0% to 0.2%. Although these releases are positive it has done little to bolster the pound. Brexit remains the key driver for Sterling value.
For more information about the other economic data releases due out in the coming weeks that are likely to impact the GBPEUR exchange rate amid Brexit negotiations, use the form below to get in touch.