IFX Market Report: Thursday 17th December 2020

While the markets wait for substantial news on Brexit, the Pound has made significant overnight gains and is advancing towards the 1.36 handle versus the Dollar. Markets have evidently processed the lack of official news as a positive sign of progress as the Pound surges to a 31 month high against the greenback. While von der Leyen asserted yesterday that “issues linked to governance now have been resolved”, it is understood that “large gaps” remain on the issues of “the level playing field and fisheries”. It is plausible that if neither side eases their stance on these two matters, a deal will not be reached in time.

Despite there not being too much difference between the open and the close, GBPUSD traded in a wide range yesterday as the pair awaited more conclusive developments on trade talks. Cable opened on Tuesday just above the 1.35 mark at 1.3509 – and spiked as high as 1.3553 in the session. Unable to hold on to these gains, the pair finally closed the day off at 1.3502.

GBPEUR also was victim to volatility. Opening the session at 1.1093, the pair spent most of the day bouncing between an 80-pip range, and finally closed at 1.1090. Just after 13:00 GMT, the pair was able to surpass the 1.11 mark, but was only able to sustain that position for 18 minutes, before it fell back into the 1.10 range.

Shortly after opening at 1.2179 yesterday, EURUSD rallied and was able to go beyond the 1.22 handle. After peaking at 1.2211, the pair gradually lost momentum and finished the day at 1.2174. Overnight however, mainly due to a weaker U.S. Dollar, EURUSD has been able to retrace it’s loses and opens this morning safely in the 1.22 range.

Today’s calendar is busy with both economic releases and central bank activity. This morning we have Core Inflation from the Eurozone, expected to come in at 0.2%. Then in the afternoon from the US, we have Building Permits, Housing Starts, Philadelphia Fed Manufacturing Index, and the weekly Jobs report. At midday we also have the Bank of England’s last Interest Rate decision of 2020. It is widely expected that the BoE will refrain from any more stimulus as it waits to see if a possible no deal Brexit in two weeks’ time further hinders Britain’s already damaged economy. Last month, BoE Governor Andrew Bailey said that he was “ready to take whatever additional action is necessary to achieve its remit” – today the BoE may to be more explicit, given that COVID-19 restrictions are being implemented again and the Brexit deadline is approaching. Investors will also be looking for any new hints about the possibility of negative rates. The BoE asked banks “what a move to negative rates… would mean for them” – Santander and HSBC both said they are not ready for such a move.

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