IFX Market Report: Wednesday 23rd December 2020

The Pound continues to trade anxiously as markets await a definitive answer on Brexit. In a closed-door meeting yesterday, Michel Barnier told the European Parliament that the UK and EU were “still far apart on fish and he felt the issue would have to be solved by Ms von der Leyen and Mr Johnson”. Despite continuing with negations, it is understood that Barnier also described the latest UK offer on fishing rights as “unacceptable”.

After opening the day at 1.3432, GBPUSD closed a touch softer, falling back into the 1.33 range, finishing the day at 1.3353.

It was a similar story for GBPEUR also – the pair started the day at 1.1003 but was unable to sustain itself at that position, closing the day at 1.0969.

It is highly likely that until a conclusive decision is made on Brexit, briefings and unofficial leaks will steer the direction of the Pound; when a final decision is made, that is when we will see substantial market movements. Rabobank argue that if a deal is agreed, GBPEUR will struggle to rise above 1.1236 – 1.1363. If there is a no deal scenario, the Dutch bank believe GBPEUR rate could fall as low as 1.0752 – 1.0526. A senior analyst says that “rising COVID-19 cases, government wrangling, a widening of tier 4 restrictions in England, increased pressure on the public purse and, in all likelihood a continuation of negotiations with the EU on areas such as financial services and security suggest the GBP may be unable to shrug off its vulnerability or volatility in 2021”.

As for EURUSD, the pair opened Wednesday at 1.2207 and continued to rise in the morning, almost touching the 1.2260 mark. The pair was unable to maintain this rally and depreciated considerably over the course of the afternoon. The pair closed at 1.2172.

On the data front, we have a packed day for the US. In the afternoon we have November’s Core PCE Price Index, forecasted at 1.5%; followed by the Durable Goods Orders, forecasted at 0.6%. Then in the afternoon we have the weekly US jobs report – Continuing Jobless Claims is expected to come in at 5558K, while Initial Jobless Claims are forecasted at 885K.

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