The Eurozone started the day with good news. Business confidence is on the up and the economic picture is beginning to look a little better. However Brexit dominates minds and lead to a day of ups and down for EURGBP.
The euro more or less ended the day where it began against sterling. However, big moves in one direction or another are expected depending on how Brexit talks end up. Against the dollar, the euro ended slightly down after a day of consolidation.
With sterling we know the issue, we just don’t know which direction it will take. Throughout the day markets behaved like a Labrador whose owner keeps pretending to throw a stick. Each time they’d get excited only to have their hopes dashed. It was, then a day of peaks and troughs, as markets reacted to rumour.
Having opened at 0.9052 the euro climbed steadily over the morning to peak at 0.9112 at around lunchtime. It then staged a series of drops and rallies before closing at 0.9059. Over all, then, it was honours even with plenty of volatility in between.
News was dominated by the impending meeting between Boris Johnson and Ursula Von der Leyen. The two will meet on Wednesday in a last ditch effort to thrash out a deal before leaders meet on Thursday.
The markets viewed the meeting as a sign that the two leaders believed a deal was there to be done. However, Michel Barnier poured cold water on the hopes with his assessment that no deal is the more likely option.
Reuters reported that a diplomat said he made the remark at a meeting of the 27 European national ministers. He also said it the EU should up date its no deal contingency plans.
Some analysts remain hopeful, but the cold hard truth is that progress has stalled.
Better than expected business confidence figures pushed the euro up early on in the day to 1.2131. However, it slipped to 1.213 over the course of the afternoon. After last week’s gains the euro appears to be consolidating against the dollar.
Looking ahead eyes are on the Eurozone’s balance of trade announcements on Wednesday and the European Council meeting on Thursday and the European’s Central Bank decision on interest rates. The central bank is expected to signal a fresh stimulus in its final meeting of the year. The decision was clearly sign posted by Christine Lagarde who said the bank would ‘recalibrate’ its instruments in December.
Everything this week has been coloured by Brexit. However, the underlying economic situation appears to be better than expected. While appetite for risk remains high, prospects for higher risk currencies such as the euro are relatively good.
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