With the Brexit transition deadline – the point at which the UK stops following EU trading rules – rapidly approaching, the pound is getting “jittery” about the ongoing and as-yet unresolved trade talks. This is making the pound to dollar rate increasingly sensitive to headlines about the progress of UK-EU negotiations.
Contrasting rhetoric from EU officials left traders scratching their heads yesterday: after Michel Barnier, the EU’s chief Brexit negotiator, had told MEPs that talks would not continue past Wednesday, a European Commission spokesperson told reporters that the EU was willing to negotiate for “as long as necessary”.
The latter’s comments suggest that negotiations could continue beyond a “last-chance saloon” meeting between Boris Johnson and European Commission president Ursula von der Leyen in the “coming days”. However, any optimism was tempered by comments from Mr Johnson earlier in the day, who admitted that talks between London and Brussels were “looking very, very difficult at the moment”.
Investors eagerly awaited confirmation of the face-to-face meeting between the two leaders. Last night we learnt that Mr Johnson will fly to Brussels later today for the make-or-break moment. Any progress achieved by the pair will not mean a deal is struck but will pave the way for more talks between officials – which had again ended in deadlock. News of the meeting not only raised hopes that both parties can overcome major disagreements on fishing rights, business competition rules and how a deal will be policed; it helped the pound to dollar rate to raise within touching distance of the 1.33 level this morning – having briefly dipped below 1.33 yesterday
Disappointing UK retail sales growth was priced into the market because the figures represented activity during the November lockdown in England – ending five months of strong retail sales. However, the consumer sector displayed much more resilience than during spring, with online purchases soaring.
Dollar Catches a Break
The dollar gained some much-needed strength yesterday – taking a breather from a sell-off that took it to deep lows last week – as US equities came under pressure after recent gains. It was also given a nudge higher by news that US worker productivity increased strongly in the third quarter.
Investors will have their eyes glued on headlines that emerge from the PM and EU Commission President’s meeting later today. A quiet day in the economic calendar on both sides of the Atlantic means Brexit will be their sole focus. Get in touch using the form below to discuss the tools available to plan your currency exchange in advance and limit your exposure to the changing currency markets.