Currency Note

Cautious optimism for an agreement on fisheries

By Christopher Nye October 1st, 2020

The pound is stronger this morning after indications that the UK and EU could be close to securing an agreement on fisheries. This has been a major sticking point since Brexit negotiations began and would be a step towards acquiring an overall trade deal.

The ECB’s President, Christine Lagarde, hinted yesterday that the Bank could consider adopting the Federal Reserve’s approach to inflation. After strong employment figures yesterday, there will be more important data releases for the US today and tomorrow.

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GBP: Pound stronger on hopes of Brexit progress

The pound strengthened against both the euro and the dollar yesterday, mainly due to month and quarter-end flows when traders give their final readings, sometimes causing market volatility.

It is also looking stronger this morning due to signs that the EU and UK could be closing a deal on fisheries – an issue that has been a sticking point in negotiations since they began.  UK Chief Negotiator, David Frost, announced that a fisheries cooperation agreement is to be signed with Norway, which is a necessary step towards an agreement with the EU.

The UK has also offered the EU a three-year plan to scale back their fishing rights in British waters from 2021 to 2024.

The House of Commons passed the Internal Market Bill yesterday and it now sits with the House of Lords.

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EUR: ECB could follow Fed’s lead

The euro has confirmed its biggest quarterly gain since 2017 against the dollar, which was helped by the introduction of the EU’s coronavirus recovery fund back in July. However, it declined 2% against the dollar in September due to dollar strength.

President of the European Central Bank, Christine Lagarde, suggested yesterday that the ECB may follow the Federal Reserve’s lead when it comes to inflation. She hinted that the institution could abandon its current policy that targets inflation of “below but close to 2%” to allow prices to run above target.

Manufacturing PMI figures came in for Germany and the Euro Area this morning. The figure for Germany was 56.4 in September, jumping from 52.2 in August, showing that the sector is growing. For the Euro Area, the figure increased to 53.7, an improvement on August’s reading of 51.7.

USD: Data shows strong recovery for labour market

The dollar is weaker against the pound and the euro this morning. This could be due to increasing hopes that Congress will agree on and implement a stimulus bill soon, which will help the US economy.

Yesterday, the release of GDP data showed that the US economy shrank by an annualized 31.4% in the second quarter of 2020. This was offset by the ADP Employment Change figures, which revealed that private businesses hired 749,000 workers in September of 2020, the most in three months and above market expectations of a 650,000 rise, raising hopes that the labour market is making a stronger recovery.

Today, personal spending figures will be released, as well as jobless claims data. This comes ahead of Non-Farm Payrolls, which are due tomorrow.

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