The pound to euro and pound to US dollar rate has had an awful start to the week, sliding from some of the better points of last week by nearly 3%.
Pound to euro has tested as low as 1.0848 today and a low of 1.3187 against the US dollar. This was always going to be a really interesting week with no Brexit deal having been agreed going into the weekend, and us approaching the week before Christmas.
In terms of predictions ahead for the pound this week, everything seems likely to be very much related to the spread of the mutant COVID strain and Brexit news, or the lack of.
News over the weekend was not particularly helpful for the UK with many picture of trains packed leaving London and shoppers queuing outside supermarkets, and lorries queuing to leave at Dover.
With Brexit just 10 days away and no-deal the default position in the market, we have seen the pound under pressure and it seems likely it will be in the firing line for as long as this seems the case, just like it has on many previous occasions.
Matt Hancock did confirm that for the UK side, a deal could be agreed right up until Christmas which might present some further opportunity for progress this week. For the EU side however their deadline of last night has passed, which makes ratifying a deal on the 28th December as planned very difficult.
Other economic news this week to move the market will be UK GDP and US GDP data released tomorrow. Both releases are for Q3 of this year and could provide some volatility although it is essentially old news.
Weaker dollar Has Fed Into a Stronger Euro – Where Next for the Pound Against These Currencies?
Before the increased uncertainty of the weekend the pound was facing fresh highs against the US dollar, in part as a result of some of the optimism of a deal from last week, but also because of a weaker US currency.
The US dollar weakened to 1.3622 last week on the interbank rate, a one-year low for the US dollar against the pound. The US dollar is the worlds most traded currency, and the world’s largest currency pairing is EURUSD in terms of volumes traded and exchanged.
This can lead to big movements on the US dollar influencing sentiment on the EURUSD rate and last week EURUSD exchange rates reached a 30-motnh high.
The resulting strength of the euro pushed the euro higher against the pound making life more difficult for euro buyers with pounds once again.
The US dollar is weaker because last week the US Federal Reserve (Fed), the American central bank, confirmed they expect the recovery to be long and slow and they remain prepared to keep monetary policy loose to do this.
Despite the uncertainty of a new mutant strain of the virus, there was also some weakening of the dollar on the news of a vaccine in recent weeks, which is seen as key to providing a pathway to global economic recovery.
As a safe haven currency, the US dollar has weakened in response, with safe haven positions previously taken on the global uncertainty of the virus unwound as investors seek more profitable shores elsewhere.
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