Currency Note

Pound stronger due to Brexit optimism

By Carl Hasty September 25th, 2020

The pound is stronger against the euro and dollar this morning after reports that the UK and EU are cautiously optimistic that a Brexit deal can be reached. Comments from the EU’s Chief Negotiator, Michel Barnier have shed a more positive light over the state of negotiations, which are due to officially resume next week.

The dollar is in a weaker position this morning after news that Democrats in the House of Representatives are working on a fiscal stimulus package to be voted on next week. This has revived hopes that the US economy will receive support ahead of the Presidential election.

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GBP: Pound stronger ahead of Brexit negotiations

The pound is stronger against the euro and the dollar this morning due to positivity surrounding Brexit negotiations. Ahead of the ninth round of negotiations, which begins next week, there have been reports that the EU is open to a “thin” Brexit deal and are optimistic that a deal can be established.

Sterling was firm against the euro and dollar yesterday as Rishi Sunak unveiled his new jobs support scheme, which will replace the furlough scheme which ends in October.

The new scheme will begin on the 1st of November, as is designed to top up the wages of those who cannot work full time. It’s hoped that this will stop the mass job cuts that had been predicted in October. Despite this, Sunak said that unemployment would rise.

Sterling also felt the pressure as Governor of the Bank of England, Andrew Bailey, did not exclude the possibility of negative interest rates.

Consumer confidence figures for the UK were released overnight, showing an improvement  to -25 in September from -27 in the previous month. This shows that consumers are more positive about the state of the UK economy for the next 12 months, despite the introduction of more lockdown measures.

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EUR: German business climate continues to improve

IFO Business Climate figures for Germany were released yesterday. The Business Climate indicator for Germany rose by 0.9 points from the previous month to 93.4 in September 2020, the highest level since February but below market expectations of 93.8.

However, businesses said that they felt they were in a better position than last month and also expect further recovery in the coming months.

As predicted, the ECB’s economic bulletin revealed that they would keep interest rates on hold. It also detailed that the ECB have pledged to buy up to €1.35 trillion worth of debt through June 2021 under its Pandemic Emergency Purchase Programme.

A two-day EU leaders’ summit due to start on Thursday has been postponed until the 1st of October after a security guard tested positive for Covid-19.

USD: Fresh hopes for a stimulus bill from Congress

The dollar is weaker against the pound and the euro this morning as fresh hopes have arisen for a stimulus bill from Congress.

Talk that the Democrats in the House of Representatives are working on a $2.2 trillion coronavirus stimulus package that could be voted on next week has helped decrease fears over the future of the US economy. However, there is still no guarantee that both sides will agree and the bill will be passed.

Disappointing jobs figures were released for the US yesterday, showing that the number of Americans filling for unemployment benefits rose by 870K in the week ended September 19th, higher than the previous week and above market expectations. Today, durable goods orders data will be released.

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