Brexit strife hurts GBP, big week for Europe
GBP:
Monday morning saw lots of headlines surrounding Brexit, emphasising the chaos as negotiations enter the final days. GBP fell abruptly, under 1.3300 vs USD and under 1.1000 vs EUR. The Sun reported that PM Johnson was ready to walk away from the talks unless the EUR was more flexible over discussions surrounding trade.
JPMorgan Chase now forecasts a 30% chance of a no-deal scenario, up from 20% last week. Barnier was downbeat when discussing with reporters this weekend, and Irish PM says the chance of a deal are 50-50.
A slight rebound late last night in GBP as Johnson was reported to be heading into more talks today, but the 1.1000 level has been breeched.
EURO:
Ahead this week, we have Thursday’s all-important European Central Bank meeting. As the Reuters article below describes, the market has high expectations of action. More bond-buying is anticipated, alongside a prolongation of the program until the end of 2021.
Bond yields have already fallen, displaying the market’s expectation of ECB action.
With the EURO currently trading above 1.2000 vs USD, we can expect the ECB to discuss FX at the meeting, and a strong € will certainly be of concern. We should expect a few fireworks on Thursday.
USD: In the US, there are many reasons for a weak USD - Covid-19 infection rates, the Presidential chaos, and last Friday's very weak employment data. EUR/USD remains above 1.2000 and the USD has performed very poorly for the last 3 weeks. With some Federal spending programs now lapsed, and the Senate still divided about a relief package, USD weakness has continued. However, the stock market continues to rally. Will we see all-time stock market highs alongside a period of economic decline?