If Christmas is a time for hope, then Ursula von der Leyen was in the festive spirit yesterday as post-Brexit negotiations rumbled on. The European Commission President was cautiously optimistic, saying a “narrow path” has appeared for the UK and EU to strike a trade deal, adding both sides are working “day and night” to achieve this. The optimism – which coincided with a weakening dollar and better-than-expected UK services sector figures – propelled the pound to dollar rate to its strongest level in since May 2018. And the pair muscled its way even higher this morning, advancing ever closer to the 1.36 benchmark.
Whether the pair can cling onto its impressive gains – or head even higher – remains to be seen. Fears persist that longstanding disagreements over fishing rights could still sink a trade deal. This led Ursula von der Leyen to maintain her cautious tone, saying an agreement is “so close but yet … so far away”.
The four-week partial lockdown in England had less of an impact on activity in Britain’s services sector than forecast. The latest Purchasing Manager’s Index (PMI) of business activity in the sector dropped to 47.6 in November from 51.4 in October – the first time since June that it has fallen into contraction territory. Not only did the government’s COVID-19 measures have less of an impact on firms than earlier in the year – when the reading plummeted to a record low of 13.4 in April – businesses also grew more optimistic about the outlook for 2021.
Economic Woes Trouble Dollar
The dollar was firmly on the back foot yesterday, following a slew of disappointing data releases, including news that US retail sales fell more than expected in November – under pressure from a surge in COVID-19 infections and decreasing household income. The second straight monthly decline in retail sales contributed to the Federal Reserve’s (Fed) decision to extend its huge bond-buying programme. Speaking after the central bank’s latest meeting, Fed Chairman Jerome Powell said debt purchasing will continue until “substantial further progress has been made” in the nation’s economic recovery.
Back in March, the Bank of England took the decision to cut its base rate to a record low of 0.1% as the pandemic strangled the UK economy. The central bank also said it would be prepared to take interest rates into negative territory for the first time in the UK’s history, should it deem it necessary in the future. While Britain’s monetary policymakers are expected to hold the rate steady today for a ninth consecutive month, any signs that might change going forward could impact the pound.
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