It would seem clear that the Pound’s “Brexit deal honeymoon” is most certainly over. Bloomberg reports that the currency is off to the “worst start of the year among its Group-of-10 peers”, noting that “the last -minute Brexit deal swept away investors’ worst fears of a messy divorce and put an end to years of political wrangling, leading the pound to jump about 2% into the end of 2020. But rather than pave the way for further gains, the resolution has brought to the foreground a host of concerns that risk undermining sterling”.
On Wednesday GBPUSD opened the morning at 1.3640, still capitalizing from a weaker Dollar. Heavy selling pressures were exerted on Sterling in the session and the pair was unable to maintain its status at 1.36, closing the day off at 1.3591.
Despite experiencing volatility in the trading day, the difference between close and open for GBPEUR was minor. The Pair opened Wednesday at 1.1066 but by the early afternoon had depreciated all the way down to 1.1006. After a steady recovery the pair was able to close at the 1.1061 mark.
EURUSD has seen the most price action of late – trading in a over 90-pip range in the last few days alone. The pair opened yesterday at 1.2325 and closed at 1.2288. Some expect the pair to soar as high as 1.24 in the coming days, with the market starting to price in the hit of a Democratic victory in Georgia. A “blue wave” will give incoming President Biden the ability to pursue his preferred economic policies – which is seen as key risk factor that continues to weigh heavy on the Greenback.
Yesterday, senior Bank of England officials spoke with Parliament’s Treasury Committee about “the stability of the UK financial system, banks’ ability to resume dividends and how regulation will change outside the EU”. Governor Bailey described the EU’s desire to seek more information from the UK about Britain’s future financial regulations as “quite problematic”. He went on to add that he fails “to see why people want to close themselves off from open markets… I think it would be much better for both sides if we have open markets and therefore certainty that way, but if we don’t then of course the markets and firms will evolve”. In regard to moving forward, Bailey suggested the best way be “that both of us will change our rules when it’s sensible to do so, we’re both transparent about it, but obviously we’ll be transparent at the time and transparent to everybody… it’s nothing unique and that seems to me the sensible basis and that’s the basis to judge equivalence”. The agreed Brexit deal does not include an EU-wide arrangement for financial services, thus the City of London can only maintain its pre-Brexit access to the EU if Brussels unilaterally grants regulatory equivalence. In a first step to addressing this issue, Treasury Minister John Glen will be leading talks with the EU this week with the aim to agree a “memorandum of understanding”.