After a disappointing start to the week, Sterling has made a swift recovery on Tuesday – trading briefly above 1.34 against the U.S. Dollar and 1.10 against the Euro this morning. This is due to reports that the UK and EU are making progress on fishing negotiations. It has been reported that the two sides are now disputing quota sizes and the length of any transition period that would keep the EU’s access to British waters unchanged.
GBPUSD started the week trading at 1.3270 after an unproductive weekend of trade talks. As sentiment has improved, so to has the rate, highlighting how reactive the Pound is to Brexit negotiations. Cable finished Monday at 1.3351 but continued to press on over night and is now trading closer to the 1.3390 mark.
Similarly to cable, GBPEUR has improved since Monday. The pair opened Monday at 1.0879 and was able to close at 1.0917. At present the rate is above 1.0950.
EURUSD was able to reclaim its status in the 1.22 range yesterday – the pair opened at 1.2197 and closed at 1.2229.
In regard to fishing, The Telegraph is reporting that the UK and EU moved close to compromise on the matter on Monday night and MPs were told to prepare for a vote on potential trade deal on Wednesday next week. The Times also reported that the UK is willing to offer monetary compensation to EU fishermen in order to tempt more concessions from the EU.
It is understood that the UK tabled an 11th-hour proposal that would see the bloc slash the value of its fishing catch in UK waters by almost a third over a transition period of 5 years, down from an initial demand to cut it by 60% over three years. Reports suggest that the EU had wanted to only give away 18% of its current quota, with a ten-year transition period. The UK had initially wanted to take 80% of the overall quota and offer a three-year transition period.
While the UK tries to deal with Brexit, COVID-19 restrictions are also weighing heavy on the Pound. Many countries around the world have closed their borders to Britain in order to prevent the spread of a new strain of SARS-CoV-2, the virus that causes COVID-19. France closed its borders to the UK on Sunday night – as a result there have been major disruptions at the Port of Dover, the UK’s most important border for commerce. Many economists believe that these disruptions, combined with Tier 4 restrictions will pose a huge negative impact on UK economic growth in the final month of 2020. Researchers at Capital Economics have told clients that the odds of the UK experiencing a double-dip recession rose massively when the Government put a considerable amount of the country into a Tier 4 lockdown. They went on to add that December could see GDP rise just 1.0%, but there is a large risk that restrictions end into 2021 and result in another quarter of negative growth, resulting in a technical recession.
