The pound to euro exchange rate rallied strongly yesterday by over 1% just before the UK and EU enter the 9th and final round of trade discussions today. GBP EUR reached a high of 1.1074 before falling in later afternoon trade. It all comes at a time when new COVID-19 cases are increasing rapidly both in the UK and the EU. If sufficient progress is made, then both Sir David Frost and Michel Barnier will then enter so called “tunnel” where final agreements will be made in secrecy later this week. David Frost has recently described a deal as “very much possible” although he nonetheless called for the EU to scale back some of its demands in certain areas including fishing. Expect major volatility for the pound to Euro depending on what soundbites are heard throughout the week as to such progress.
The Sunday Times has reported that cabinet minister Michael Gove is said to be “terrified” about the prospect of a double whammy of a second wave of coronavirus and a no deal Brexit. However, it just is not yet clear where discussions will end up this week. David Frost has said “We have been saying from the beginning of this process that we simply want a standard free trade agreement like Canada’s. Sadly, the EU’s position has not been so straightforward, and we continue to be asked to accept provisions which do not reflect the reality of the change which our exit from the EU brings.”
The Financial Times has reported that France has accused the UK of intimidation in the trade discussions with a nod to transport delays across the channel. France’s Europe Minister Clement Beaune said “Anything which disrupts, disturbs or increases tensions in the negotiations is regrettable, and we won’t fall for this kind of intimidation at the European level.” Michael Gove has reportedly signalled that there would likely be ques of up to 7,000 vehicles waiting to cross the Channel to reach Kent.
It remains to be seen whether discussion will in fact enter the elusive “tunnel” considering that Mr Beaune also said that it would no be possible for the EU to grant Britain access to the EU market unless it accepts environmental rules and crucially the level playing field on state aid. Expect a volatile week as it becomes clear as to whether or not either side backs down and a compromise is made.
Economic Data Out This Week
UK Gross Domestic product (GDP) data for the second quarter is released on Wednesday which will be keenly awaited as the economic hit to the British economy continues to be closely monitored. Thursday sees UK Purchasing Managers Index (PMI) data from the manufacturing sector which may give some further clues as to how well the sector is currently performing.
UK Chancellor Rishi Sunak announced further measures to support the economy last week with a further £5 billion for the economy after new lockdown measures were also introduced amidst a sharp rise in new COVID-19 cases. Some economists are suggesting though that a further one million people will lose their jobs with the young and low skilled workers hit hardest. Further job losses could prove particularly damaging for the recovery of the economy and so these coming weeks and crucially how severe this second wave of the pandemic becomes could result in high volatility for sterling exchange rates. Sanjay Raja from Deutsche Bank said last week “We don’t think the Chancellor’s plan will be enough to avert a crisis in the near term”.
A national lockdown could see considerable market movement as was seen just before Britain went into lock down just over six months ago. London Mayor Sadiq Khan has called for immediate action.
Those looking to buy or sell currency would be wise to monitor the situation very closely as sharp swings in the market are to be are expected in these unprecedented times which could change the pound to euro forecast dramatically.
As an aside from Brexit and Coronavirus, British politics could also see an interesting week with several conservative MP’s reportedly looking to back an amendment from Sir Graham Brady surrounding a renewal of emergency powers. The amendment would give more power to parliament when COVID-19 restrictions are about to be imposed and which could see Boris Johnson lose a vote with his 80-seat majority for the first time since the December election.
In the US, the presidential election approaches with just over one month to go before the polls open. GBP vs USD could see a hugely volatile time if there is a close result on election day. President Donald Trump has already signalled he may not leave the white House easily on the back a close vote.
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