The euro to pound exchange rate was trading lower as sterling continues to gain on Brexit deal hopes. A deal is still not looking like it is a sure thing, but many currencies have rallied on fears of a No Deal outcome, so the positioning has flipped to caution. Despite the small range trading over the past months, we would still likely see volatility once the outcome is decided and traders will be positioning ahead of the Christmas break.
The euro to pound rate was trading at 0.9075 ahead of the opening of the UK markets.
Brexit Talks Still Stuck on ‘Serious Disagreements’
Brexit talks are still clouded and there is no movement on the previous sticking points. The UK Housing Secretary Robert Jenrick told reporters:
“There’s still the same serious areas of disagreement … we’re working through those issues, our negotiators will keep going. But at the moment there isn’t sufficient progress. It isn’t a deal that the prime minister feels he can sign us up to.”
The EU declined Prime Minister Boris Johnson’s latest offer on fishing rights, which has been one of the obstacles to a deal. Johnson spoke to the EU Commission President twice by phone on Monday in an effort to break the deadlock. The UK suggested a deal that would see a 30% share in value of the EU catch in British waters, which was a substantial drop on last week’s 60% demands.
The December 31st deadline is getting closer and closer, with the chances of a deal being agreed and passed by Parliament getting slimmer.
Fears of Virus Spread into Europe Tips the Currency Scales
The week started with panic that a new strain of Coronavirus was set to hit the UK as the country went into another lockdown. The latest fear is that the virus will move into Europe and this is helping the pound to recover against the euro.
The French government lifted restrictions on travelers and truckers from the UK entering the country. However, anyone looking to cross must produce a negative test for Coronavirus taken within the last three days.
Europe is now seeing an increase in their lockdown efforts and this is weighing on the single currency. Ireland is expected to close pubs and restaurants from Christmas eve in an effort to contain the spread of the virus. Ireland has extended a travel ban to Britain, joining 40 countries in blocking travel in and out of the UK
Despite the kneejerk reactions, the case for a more severe strain of the virus is weak. The US Center for Disease Control said there was “no evidence” the variation was more severe, while Canada’s drug regulator followed up those comments by saying it was “too soon”.
The markets will now head for a Christmas break, but we can’t rule out a sharp move with a late Brexit agreement. If that doesn’t come then the euro to pound rate could see volatility into year-end as both countries move to WTO tariffs and a collapse of talks.
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