If November was good for the euro, December is shaping up to be even better, with gains against most of its main rivals, including GBP with a rise to 0.91 and experts suggesting more gains could follow if Brexit talks stumble.
It’s a case of no news is actually bad news as Europe’s chief negotiator Michel Barnier warned that a deal hangs in the balance and that ‘differences still persist on three major issues’. Things weren’t helped by more ‘no deal’ rhetoric coming out of France. President Emmanuel Macron said he is keeping a close eye on developments and will not vote for any deal which is not in France’s best interests. According to reports in the Times, France is advocating no deal if Britain refuses to budge.
The markets have been keeping the faith that someone, somewhere will find common ground, but as the clock continues tick downwards there are signs of nerves. The euro gained against the British pound which slumped against all of its main rivals.
GBP was the worst performing of the main currencies. At the time of writing the euro has edged up to 0.91. Hopes of a deal this week which had seemed high are no receding with all eyes turning to the meeting of European leaders at December’s Council of Europe Summit were a final decision will be reached.
Even so there are some still fanning the flames of hope. Goldman Sachs is backing the pound as a ‘buy’ against the euro who still believe a Brexit deal could be signed at around the time of Decembers meeting which could trigger a strong economic recovery.
Optimism continues to grow on the vaccine front. The UK became the first country to approve Pfizer’s vaccine for widespread use, with Moderna’s version also filing for emergency regulatory approval in Europe and the US. Clinical studies show the vaccine is 94% effective at protecting patients against the virus.
Growing hopes of a vaccine continue to help the euro against the dollar. While most analysts had expected it to merely consolidate recent gains the EURUSD pair has picked up a second wind. Having broken through the 1.20 barrier the euro reached highs of 1.2076 and analysts are suggesting it could now be eyeing 1.22 in coming weeks. Growing investor confidence is not good news for the greenback with interest growing in currencies which are perceived to be higher risk.
For all the good news surrounding COVID-19 much of the underlying economic news is pretty grim in the Eurozone. Today’s big economic data came in the form of unemployment figures and they were not good. Unemployment for the block was 7.6% in October, up 1% on the previous year with Eurostat estimating that 16.2 million people were unemployed across the EU 27. However, this does represent a slight improvement from the figure from September which stood at 8.5%.
The data suggests the economic situation is improving but remains fragile. This, along with other downbeat signals throughout the week so far, casts a shadow on the underlying economic outlook. That could spell trouble for the euro’s fortunes in the longer term.
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