Currency Note

Pound hits three-month high against dollar

By Christopher Nye December 4th, 2020

The pound is still at strong levels against the euro and the dollar on hopes of a Brexit breakthrough. Reports suggest that negotiators are urgently seeking compromises to key issues, such as fishing rights and the level playing field. Talks continued late into last night and are expected to resume today.

Employment figures for November will be released for the US today. Despite high death tolls and infection rates in the US, the safe-haven dollar is still weak due to optimism for a stimulus package and hopes for an imminent vaccine rollout.

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GBP:  Brexit trade talks continue

The pound is at stronger levels against the dollar and the euro this morning, hitting a three-month high against the dollar on hopes that the UK and the EU are closing in on a trade deal. Negotiators engaged in a second night of intensified talks in London, with one EU source calling it the “big push”.

Despite this, there are also reports that France could still threaten to veto the agreement on fisheries and that the EU have brought last minute requests to the table. This uncertainty could cause the pound to become volatile over the coming days. The focus is still to agree a deal by the European Council meeting, which takes place 10-11 December.

As predicted, PMI data yesterday showed that the UK service sector fell into contraction territory in November, however the figure came in better-than-expected. This shows that business activity was hit by a second lockdown in England and tightened COVID-19 restrictions across the rest of the UK. This figure also reflects reports of widespread redundancies.

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EUR: Euro goes from strength to strength against dollar

The euro is still going from strength to strength against the dollar, mainly due to dollar weakness.

November PMI data for the Eurozone was released yesterday, showing the sharpest contraction in services activity since May. This was due to restrictions and lockdowns put into place to curb the spread of coronavirus, which caused export business to decline and employment continued to fall.

Retail sales for October came in better-than-expected, but still showed a fall from the previous month.

USD: Non-Farm Payrolls today

The dollar has continued to weaken as there is increasing optimism for a US stimulus package in the near future. The proposal for a $908 billion Covid-19 aid package is gaining traction in Congress, with senior Democrat officials backing it.

The US has reached the highest number of daily deaths, infections and hospitalisations since the beginning of the pandemic. However, this has not helped the dollar’s safe-haven appeal.

Today, Non-Farm Payrolls will be released. This is an employment report released monthly and can affect the US dollar, the bond market and the stock market. It’s predicted that the US economy will have added 469,000 jobs in November, a drop from the previous month.

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