The euro spent the day consolidating gains against the dollar while its fortunes against sterling depend on what happens with Brexit. After gaining against GBP throughout Wednesday there were signs of more stability with the pair levelling out at 0.90391 by the close of business.
Against the pound the euro is down overall, over the past day. It slumped from an initial 0.90573 to a low of 0.9000 before rebounding to 0.90391.
Gains against the dollar continued moving to a high of 1.217 before settling at 1.2158. At the start of the week all the talk was about breaking the psychological 1.2 barrier, but already eyes are turning to 1.22.
Movements towards a Brexit deal have been a stop start affair. Yesterday key players were playing down prospects with Michel Barnier pointing to three major areas of difference. Today, markets have pricked up their ears at the suggestion a deal could be completed by the weekend.
Much of this comes from the news that the controversial internal markets bill is coming back to the Commons. The bill has been a major flash point for negotiators in Europe as well as the incoming US President. Its passage puts pressure on UK negotiators to get their skates on to avoid even more hostility.
The bill would effectively commit the UK to breaking international law and reneging on the Withdrawal bill, but this only comes into effect if the UK leaves without a trade deal.
Against the dollar, the euro continued to march forward. It has now rallied 5% against November lows spurred by a weakening US economy and an improving global picture. Sentiment in the US is downbeat. Experts are talking of stimulus and COVID cases are still high. Europe, meanwhile, is starting to show signs that restrictions have been working and with a vaccine seemingly around the corner, markets are getting bullish.
Looking to the future opinion is mixed and that’s partly because sentiment is also mixed. Good news in the form of COVID-19 vaccines is countered by bad news with a worsening economic sentiment. For now, rising optimism around the world has damped USD’s value as a safe haven currency. Growing appetite for risk and a sense that 2021 could see a vaccine inspired rally have investors looking more kindly at currencies such as the euro.
In the short term, though, movements may be determined by progress, or a lack of it on the Brexit front. A deal could see GBP bounce back strongly while a breakdown could see it plunge further. While optimism persists jitters are rising as talks go down to the wire.
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