The pound to euro exchange rate is braced for another tumultuous week in the foreign exchange markets as intensive Brexit talks will continue into this week. Last week saw erratic swings in the price of the pound to euro and pound to US dollar rate as Brexit negotiations ended without agreement in the ninth and final round of discussions. The Financial Times reported over the weekend that there were signs of some softening of stances and a suggestion that a final effort would be made to find solutions to the disagreements over state aid and the fisheries.
Angela Merkel said “It will emerge in the next few days if we can make progress or not. As long as we’re continuing to negotiate, I’m confident. But I have no breakthrough to report.”
It is clear that Britain seeks a Canada style trade agreement, but the EU is reluctant to offer the UK such a deal due to Britain’s proximity to the EU. Boris Johnson was reported to have said to the BBC “I hope that we get a deal, it’s up to our friends. They’ve done a deal with Canada of a kind that we want, why shouldn’t they do it with us? We’re so near, we’ve been members for 45 years. It’s all there, it’s just up to them.”
Boris Johnson met with Ursula von der Leyen on Saturday and announced that further intensive talks would continue into next week to try and find agreement over the contentious issues of both state aid and fisheries.
As talks move forward expect high volatility in a high stakes’ negotiation for both the UK and EU and their respective currencies. Those with pending requirements to either buy or sell euros would be wise to stay very up to date with all the latest developments with little time left until the EU summit 15th-16th October and the end of the transition period which ends 31st December 2020. The pound to euro forecast could change very dramatically depending on the outcomes in these coming days.
The pound to US dollar exchange rate is also set for further volatility beyond what has already been a hugely uncertain period in the US with an economy hammered by COVID-19 still in the midst of a pandemic, widespread protests as well as US presidential election. On Friday US president Donald Trump was reported to have tested positive for Coronavirus with his wife Melania and has now started his two-week quarantine period. Of course, this has major implications for the election to be held 3rd November. It remains to be seen whether the President will be able to participate in the final two weeks of campaigning. It is also unclear whether or not his illness will have any bearing on the election result as the latest polls currently put his opponent Joe Biden in front. For the moment he has had to cancel three rallies – one in Florida and two in that key swing state of Wisconsin.
The biggest fear is, if the election result is very close which could leave a prolonged period after election day whilst things are sorted out. The President has repeatedly signalled he may be unwilling to leave and hand over power on the back of close election result. Such an outcome could create significant volatility for dollar exchange rates.
To date, Donald trump has had the economy working in his favour for this election despite the pandemic. Friday saw the latest US non-farm pay roll numbers which saw 661,000 new jobs being created in September as unemployment fell to 7.9%. Expectation was for a rise of 850,000 which indicates the bounce back after lockdown is starting to slow. To put this into context the US economy created about 1.6 million jobs in both months of July and August. Nonetheless the economy is creating new jobs following the onset of COVID-19 and subsequent lockdown. This will be the last of the big US jobs data for Americans to consider as we approach polling day.
Economic data is likely to be overshadowed by Brexit developments, but UK Gross Domestic Product numbers are released on Friday this week. So far the overall outlook is better than initially predicted and the Bank of England has echoed a more positive rhetoric for the UK economy. Friday’s data will help determine whether the UK is set for the desired V shaped recovery or whether that recovery becomes more protracted which could damaging. UK unemployment is expected to rise rapidly as the furlough scheme comes to an end and will be an important release to monitor.
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