Trade talks between the UK and EU negotiators took place last week for what was scheduled to be the final round of trade talks before the key EU Summit this month. Usually there would be an update from both sides at the end of the week but that has not happened this time, so the markets remain on tenterhooks in anticipation for an update. Unsurprisingly the euro to pound exchange rate has remained relatively unchanged so far this week, with yesterday’s trading session experiencing a half-cent trading range from the high and lows of the day. The pair are relatively unchanged today with a less than 20 pip trading range from high to low and I believe the small market movement is due to the markets awaiting the Brexit trade talks update.
Both parties have previously made it clear that they had hoped for the trade talks to be agreed in principle by the EU Summit this month, which will take place on the 15-16th. If both parties remain at loggerheads by this time, the chances of a no-deal Brexit increase and up until now we have seen a weakening in the value of the pound whenever key figures from either side allude to this possibility.
For those of our readers following the euro to pound pair, I would think that this topic is the most crucial one at the moment in terms of influencing the EURGBP pair, as the next 10-days could be crucial for the UK economy moving forward.
Since the lockdown restrictions were lifted nationally the UK economy has indicated a V-shaped recovery, especially in the construction sector. The readings have all shown that growth is taking place in the sector and the Construction Purchasing Manager’s Index (PMI) reading for September will be released this morning, with expectations of 54 are expected. Any reading north of 50 indicates growth and as the PMI figures are quite forward looking a positive update this morning could buoy the Pound.
Yesterday the PMI for the Services sector also demonstrates positive growth through September, this update is arguably more important as the sector covers around 80% of the UK economy. Despite this positivity along with record house price levels recently hitting the media headlines, there are fears going into winter that COVID-19 cases could spike once again resulting in further lockdown measures which could scupper the UK economy’s recovery.
Some of the incentives implemented by Chancellor Rishi Sunak have had a positive impact on the UK economy such as the stamp duty holiday which as previously mentioned has resulted in UK property prices hitting record levels. The concern for some is that will he have any tools remaining at his disposal should another sharp rise in the number of cases take place. He has also been criticised by some for overspending as the UK debt rises dramatically as a result of some of his policies.
Another topic of discussion at the moment that could also impact the EURGBP exchange rate is the potential for the Bank of England to cut interest rates once again leaving them in negative territory. This would be a first for the UK and recently a number of members of the Bank of England have alluded to this possibility. This week there will be speeches from BoE governor Bailey and also Chief economist Haldane so I expect this talks to be followed closely in case it’s mentioned again.
The euro has been one of the stronger currencies this year performing well against the pound and the US dollar, despite implementing stricter lockdown measures than both the UK and the US in most cases. There are fears of another spike in the number especially in France and Spain at the moment with Madrid going back into lockdown recently. Whether the Pound manages to strengthen and break below the 0.90 level the EUR to GBP pair have consolidated above for some time now will depend in my opinion on the state of the trade talks. It’s also worth remembering that 0.94 is the highest level the pair have traded at in over 11-years now so EURGBP remains towards to top of its long term trading range.