Currency Note

‘Brexit Day’: UK to leave EU at 11pm today

By Erin Harding January 31st, 2020

EU

The UK is set to leave the European Union at 11pm today, after four years of protracted negotiations. The pound is currently up against the euro, but there’s plenty of uncertainty ahead.

The British government has a deadline of 31st December to complete its trade negotiations before the transition period expires, which many worry could be too short. Nonetheless, in that time, British citizens can still move and buy in the EU as they do now.

The usual schedule of economic releases continues, and today we will see a number of figures from the eurozone, including GDP numbers and flash inflation figures. Yesterday, the Bank of England voted to keep interest rates on hold, although two members did vote against, after days of speculation over whether a cut would occur.

Poor GDP data from the US has meant the dollar has started today slightly weaker, missing the Trump administration’s target for the third year.

As the UK leaves the European Union, it’s a big step into the unknown. And, for any business with currency exposure, it’s crucial to understand the risks and how to protect against them. Download our Quarterly Forecast to find out more, and speak to your Business Trader on 020 7898 0500 now for personalised guidance.

GBP: BoE leave interest rates on hold

Sterling strengthened against both the euro and the dollar yesterday, and is still strong today as the Bank of England voted to keep interest rates on hold at 0.75%. The result was 7 to 2, with officials Michael Saunders and Jonathan Haskel again voting to cut rates.

The BoE noted that the economy had picked up since December’s general election and global growth had stabilised, largely due to a reduction in trade tensions. The markets have slashed expectations for a rate cut in March, reducing the likelihood from 80% to 16%.

This evening, the UK will formally leave the EU at 11pm after nearly 50 years of membership. We’ll now enter the Brexit transition period, where negotiators have less than 11 months to secure a trade deal. Depending on the progress of these talks, the markets could become nervous, especially if negotiations run right down to the wire. It’s thought that the Prime Minister will go after a Canada style trade deal with Brussels.

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EUR: Markets await GDP figures, while UK set to leave EU

Although the UK is officially leaving the European Union, there is still plenty more activity expected today. French GDP figures showed an unexpected, although Spanish figures came in as expected. The expected jump in German sales figures didn’t materialise, although year-on-year numbers did return to positive figures. French household consumption has also dropped.

Later today, we will see Italian growth and then growth and inflation figures for the eurozone as a whole.

Meanwhile, the next stage of Brexit is trade negotiations. Although we can expect plenty of rhetoric from both sides, the actual negotiations cannot start until March, as all member states need to sign off on negotiating goals. There is still a huge amount of uncertainty, with most doubting that a full trade deal can be agreed within the time available, without an extension.

USD: Dollar weak on poor data

The dollar weakened yesterday, ending its safe haven rally. GDP data was released, showing the slowest annual growth for the US economy in three years. The economy also missed the Trump administration’s 3% growth target for the second consecutive year.

Personal consumption weakened dramatically, and as this usually factors into the Federal Reserve’s policymaking, the expectations for an interest rate cut in March rose from 7.2% to 17.7%.

Today, Personal Spending data will be released, as well as Consumer Sentiment figures.

The World Health Organisation has declared the coronavirus an International Health Emergency, which has seemed to add to the markets acceptance of the situation.

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