As trade negotiations between the UK and the EU officially get under way today, the pound has found nominal resilience going into Tuesday’s open. At the close yesterday, we saw sterling gain ground against both the euro and US dollar. Cable was able to climb into the 1.28 levels and GBPEUR spiked into the 1.10’s.
The main catalyst of the pounds new found vigour is that recent reports suggest that both Brussels and the UK government remain “optimistic” and “determined” to secure a deal of some sorts before the all-important EU summit commences on the 15th October.
Yesterday, Michael Gove noted that the talks on implementing the withdrawal agreement are at a “healthy stage”; while Maros Sefcovic, Vice-President of the EU Commission, asserted that the UK government’s negotiating position is still “far apart from what the EU can accept”. It is more than likely that Sefcovic is referring to the Internal Market Bill (IMB) specifically here, given that both parties concur that there is still disagreement over the UK’s intentions to override parts of the withdrawal agreement relating to Northern Ireland. Sefcovic remained hopeful when asked about the topic, saying that there is still a “window of opportunity” to come to an agreement on Northern Ireland protocol, but that window is “rapidly closing”.
As a result of the above, GBPEUR was able to make significant upside moves in the trading session. Opening at 1.0995, the pair managed to climb to 1.1033 by the close of the day.
As for cable, a similar story. GBPUSD opened at 1.2787, and as the pound reacted to the latest news, the pair spiked correspondingly, finally closing off at 1.2861.
EURUSD in contrast saw limited price action on Monday. The pair opened at 1.1629, and in spite of Lagarde’s speech, ended the day marginally better than it opened at 1.1658.
Another stimulant to the pound yesterday was comments from Sir David Ramsden, the Deputy Governor for Markets and Banking for the Bank of England. The BOE member boosted sterling when he downplayed the possibility of negative interest rates in the short-term. Ramsden declared that he still sees the effective lower bound in the bank rate at 0.10% and GDP recovering steadily. Despite this relatively upbeat tone, Ramsden reiterated his concerns about the uncertainty and risks stemming from Brexit, the US election and COVID-19.
On the data front, today the two notable releases will be coming from Germany, in the form of the latest Inflation report; and the US, with CB Consumer Confidence being released at 15:00.