IFX Market Report: Monday 21st December 2020

UK and EU negotiators once again failed on Sunday to come to an agreement on post-Brexit relations. As a result, the Pound has a taken a sharp turn to the downside and is trading at 1.32 against the U.S. Dollar, and at 1.08 against the Euro. While both Lord Frost and Michel Barnier concur that “key issues remain”, talks will continue on Monday morning. Barnier noted that negotiations are at a “crucial moment”, but the EU won’t agree to any deal unless it is “balanced and reciprocal”. Equally, the UK government has claimed that a deal will not be reached unless there is a “substantial shift” from Brussels.

With Brexit still dictating Sterling’s performance we can expect more volatility in the week to come. Last week we saw cable break 31-month highs as markets became increasingly optimistic that a deal would be secured; now however, given that sentiment has soured, we can expect pound pairings to trade substantially lower. GBPUSD opened Friday at 1.3543, and closed below the 1.35 handle, at 1.3496. This morning the pair opened at 1.3270.

GBPEUR has also been at the mercy of Brexit – depreciating considerably from last week’s trading range. On Friday, the pair opened strong at 1.1045 and was able to (near enough) sustain itself at that range throughout the session, closing at 1.1031. But with negotiators missing yet another deadline on Sunday has caused the pair to open this week in the 1.08 range.

After breaking near 3-year highs last week EURUSD had somewhat of a quiet session on Friday. Opening at 1.2260, the pair closed the week not far off that mark at 1.2235. EURUSD is likely to be vulnerable over the coming days to profit-taking in possibly illiquid holiday markets.

The outlook for the Pound this week looks gloomy – with Brexit sentiment worsening, and a new variant of coronavirus rampant – Sterling could go from bad to worse. On the Brexit front, while the EU notes that they “respect the sovereignty of the UK”, they should “be able to act when our interests are at stake.” In regard to COVID-19, Health Secretary Matt Hancock told Sky News that the government has put all kinds of “different measures” in place to combat the spread of the virus. He went on to stress the importance of controlling “the spread of the new variant” better “than we did to control the spread of the old variant.”

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