IFX Market Report: Friday 11th December 2020

As another week comes to a close, uncertainty on Brexit continues to exert downside pressure on Sterling. In a week that has seen failed negotiations, new deadlines and no-deal contingency plans published, the Pound has fallen by over a percent against the Euro and U.S. Dollar. Boris Johnson last night said that the UK should prepare for a “Australia” style Brexit – which is his term for a no-deal. Despite both sides suggesting that a no deal has become the likely outcome, UK and EU negotiators will work through the weekend and on Sunday decide whether talks are worth continuing.

Thursday proved to be another testing day for GBPUSD. Cable opened the session at 1.3316 and after a turbulent morning found itself below the 1.33 mark, sinking as low as 1.3245. The pair was able to retract some of the losses it has made and finished the day off at 1.3293. Overnight the pair was able to reclaim its status in the 1.33 range but at 07:30 GMT depreciated considerably and fell to 1.3180.

As for GBPEUR, the pair also took a sizable fall but unlike cable was unable to reclaim any of the losses it had made. The pair opened the session shaky at 1.1010 and following more no deal rhetoric was unable to sustain itself at that level, closing finally at 1.096

In contrast, EURUSD surged yesterday, once again surpassing the 1.21 handle. After a tough week, the pair was able to end a consecutive three-day losing streak – opening at 1.2094, the pair spiked throughout the session and finally closed at 1.2118. It is important to note that the lack of US dollar price action was seen as one of the key factors that extended some initial support to EURUSD.

The Euro also got an additional boost after the ECB decided to leave its benchmark interest rates unchanged at the end of the December meeting. The ECB also “decided to increase the envelope of the pandemic emergency purchase programme (PEPP) by €500 billion to a total of €1,850 billion.” In the post-meeting press conference, ECB President Christine Lagarde said that the increase in PEPP reflects fallout in economic activity, noting that “the incoming data and our staff projections suggest a more pronounced near-term impact of the pandemic on the economy”. She reiterated that uncertainty remains high due to COVID-19, yet the ECB are willing to use all the necessary “instruments that we determined were most effective under the current pandemic circumstances” in order to support the economy.

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