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Sterling trades buoyantly ahead of Sunak's statement

The Pound is buoyant ahead of today’s mini-budget from UK Chancellor Sunak where he will lay out the government’s plans to kickstart the economy. He’s expected to announce stamp duty holidays, job placement plans for young adults, green initiatives and potentially cuts to VAT (around 12.30pm today). Many of his plans have already been leaked to the press and some feel the spending won’t go far enough. Traders will be keeping an eye on the announcements and the more spending the better for the Pound. The mood around Brexit continues to oscillate between fear and optimism. Now the deadline for requesting an extension to the transition period has passed, investors appear to be pushing out the Brexit risks further out into the future. The chief negotiators met for dinner last night and the silence after this meeting could indicate some progress was made. Although separately Boris Johnson told Angela Merkel the UK was ready to leave without a deal at the end of the year. Analysts are now suggesting the business end of these talks will only come after the summer, when we might see bigger Brexit moves in Sterling. In other news, Covid-19 continues to wreak havoc around the world with spikes in new cases and the re-introduction of localised lockdown measures. Cases are still increasing across US States with the Florida, Texas, California, and Arizona causing the most concern. President Trump continues to dismiss the severity of the virus and his government have announced they are officially leaving the World Health Organisation. News of a second wave in Australia’s second largest city, Melbourne, and the resultant new 6-week lockdown in the area shows that no region in the world is totally out of the woods yet. As a result, both the GBP/USD and the GBP/EUR have hit a 3-week high. However, both crosses have been trading in relatively tight ranges with no major breakouts so far.

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Pound lower as Boris prepared to accept Australia-EU terms on Brexit

The Pound has moved lower this morning as increased Brexit uncertainty and market risk aversion continues to weigh on Sterling. Over the weekend Boris Johnson told the Polish Prime Minister he would be ready to accept moving to “Australia terms” after the transition period ends with the EU should no deal be reached before the end of the year. Most EU-Australia trade follows the World Trade Organisation rules (bar a few specific agreements); so this would essentially be a no deal Brexit. This has led to some Pound weakness. The deadline for requesting an extension to the transition period is tomorrow and Boris has already clearly stated he would not be making this request. Intensified UK-EU trade talks resume this week and will continue into July. Markets will be closely watching the headlines from these talks, so we expect continued volatility in the Pound over the coming weeks. Although there’s still huge divergence in positions, some analysts feel that the tone of the talks are becoming more conciliatory and that eventually compromises on both sides might be made. Sterling has also been hit by an increase in risk aversion in the markets as a surge in coronavirus cases in the US has made investors worry that the global economic recovery may be disrupted before it’s even properly got going. Certain southern US States are seeing record daily highs of new cases (partly down to increased testing though) and some States are having to reimpose lockdown restrictions. Although the US is unlikely to go back into full lockdown mode, it’s still likely to be very damaging to their economy. There’s debate about when and if the US Dollar will lose it’s safe haven status should their situation worsen and as other regions of the World continue their recoveries. The Pound generally gets hit when market risk aversion increases due to the UK’s close links to financial services and global investment. As a result, the GBP/USD has pushed to the lowest levels since the start of June. The GBP/EUR has pushed to a 3-month low with the market breaking below the 1.10 mark. The Euro has made decent gains as the regions recovery from Covid has been going well and the united EU response to the virus has made the single currency more attractive. This week traders will be keeping an eye on Brexit headlines, US Covid-19 case numbers, the latest US employment figures (Thurs) and UK services (Fri).

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Pound down as BoE increase bond-buying by another £100 billion

The Pound has lost some ground this afternoon after the latest Bank of England interest rate meeting. Policymakers voted to increase the central bank’s bond buying (quantitative easing) by an extra £100 billion to help support the coronavirus-hit economy. They said they would spend this extra on government bonds and expect the new total target of £745 billion would be bought by the end of the year but at a slower pace. By purchasing government bonds they’re helping support the government’s enlarged borrowing requirements created by Covid-19 which also helps to keep borrowing costs down for businesses and consumers. Initially the announcement strengthened sterling as their decision was slightly more hawkish (optimistic) than expected with some traders expecting a larger increase in stimulus. However, the market quickly turned negative on the Pound and it has been heavily sold back. Traders might feel that there is not as much support coming from the Bank of England as they would like or it’s just a ‘buy the rumour, sell the news’ move. Either way, the GBP/USD is down 1% on the day and currently trades at the lowest levels of the month. The GBP/EUR is down 0.75% on the day and also at the lows for June.

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UK economy contracts by 20.4% in April as lockdown bites

The UK economy contracted by a whopping 20.4% in the month of April as the country was paralysed by the coronavirus lockdown. This was the largest slump since records began and worse than forecast. Although April is likely to represent the trough in GDP, it demonstrates how severe the impact of Covid-19 has been on our economy and how the recovery might take longer than previously anticipated. The vast fiscal costs of the collapse and the large rise in unemployment are likely to create long-term economic damage. So far these figures haven’t had a huge impact on Sterling though. Brexit continues to weigh on Sterling and the UK government are expected to formally declare they will not be requesting an extension to the transition period – regardless of the ongoing coronavirus crisis. However, they’re expected to announce a loosening of the border checks for imported goods after the transition period to help reduce the burden on British businesses. Brexit negotiators have also agreed to “an intensified timetable” for talks over the coming weeks in an attempt to make some progress on securing a deal. Recent talks have stalled and a breakthrough continues to feel a way off. In other news, US stocks plummeted yesterday – the biggest falls since March (-6%) – as analysts’ fears increased of a potential second wave of coronavirus cases in the US. Covid-19 cases have been rising in many US States over the past couple of weeks and Florida, Texas and Arizona all registered their highest number of new daily cases yesterday. This all comes at a time when the US government have been easing restrictions and pushing for the US economy to reopen quickly. The recent widespread protests in the US only adds further reasons to be concerned. With the US Government declaring they will not lockdown the economy again, it remains to be seen how a second wave would play out and how damaging (and long-lasting) the impacts would be on their economy. As a result, the GBP/USD moved around 1% lower yesterday, but it has already clawed back around half of this today. The GBP/EUR has been trading within a fairly tight range and, although it edged lower yesterday, it has also recovered some ground today. US Covid-19 case numbers will be closely watched out of the States later on today and then eyes will turn to Boris Johnson’s (remote) meeting with the European Commission President on Monday to discuss Brexit.

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Surprise US job figures boost risk appetite further

The market has been surprised by the latest US payroll figures which showed much stronger employment numbers than expected. Fearing the continuing impacts of Covid-19, analysts had forecast a fall of around 8 million, however, the data showed the US economy added 2.5 million jobs. This is a huge improvement on last month’s record low reading of a 20 million decline. Further details showed the unemployment rate fell to 13.3% versus estimates for closer to 20%. This data indicates that the worst of the downturn from Covid-19 might be over and it has boosted optimism for a faster recovery. US stocks rallied sharply on the release and other risk assets, such as Sterling, jumped quickly. As a result, the GBP/USD has continued its recent ascent, rising another cent today and hitting a 3-month high. The GBP/EUR has also made ground back (as the Pound benefits more than the Euro on increases in risk appetite) and is up around 1% today. In other news, the latest round of Brexit negotiations have shown little progress. It seems that they’ve resigned from the fact they’ll get anything done before the end of June but will keep the door open to further negotiations until the end of October. It remains to be seen whether Boris Johnson will extend the transition period or not and a decision needs to be made before the end June. Any extension would support the Pound as it reduces the pressure of a no-deal exit.

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Pound up on Brexit optimism and as economies reopen

The Pound has moved higher this morning after reports suggest that a breakthrough in Brexit talks is closer than last week. According to The Times newspaper, London are prepared to compromise on some Brexit issues providing that Brussels does as well. The report indicates that Britain might flex on fisheries but also on broader trade relations. Negotiators meet again today in what is the final week of negotiations before they need to make a decision on whether to extend the transition period or not. Boris continues to refuse any extensions and, without reaching a deal before the end of the year, the UK would leave the EU on WTO rules. Traders will be very closely watching how these talks are progressing and the general tone. Investors are also encouraged by the latest UK coronavirus statistics which showed only 111 deaths on Sunday. Please note that weekend numbers are generally lower but it’s still increasing belief that there could be a quicker return to normal. Monday’s figures will be released later in the day. In other news, civil unrest continues to rage in the States following the murder of George Floyd from the police. President Trump is threatening to go hard on these protests and bring in the military. The US are still struggling to control Covid-19 and these large protests might create more infections and therefore potentially cause delays to re-opening the US economy. Market risk appetite has so far been fairly resilient to these protests as global economies are reopening and after the announcements of huge support packages from around the world. As a result, the GBP/USD is 1% higher from yesterday and trading around a 1-month high. The GBP/EUR is also up 1% from yesterday’s low and now trades around a 2-week high.

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Euro rallies as proposed European recovery fund boosts optimism for region

The Euro has been rallying over the past couple of days which has been driven by various factors but predominantly by the proposal of a European recovery fund. The EU have proposed an ambitious plan to help support the European economies most affected by the impact of Covid-19. This package includes around 500 billion euros of grants (plus an extra 250 billion in loans) and may help kickstart their economic recovery. Although the deal is yet to be signed off, the backing of Germany and France should be sufficient to get the deal over the line. This is supporting the Euro as it’s an encouraging sign of unity within the Bloc and the funds should really help the region’s economy rebound better than most. As a result, the GBP/EUR has slipped to a 2-month low this morning having lost nearly a cent from yesterday. The EUR/USD has also pushed to a 2-month high having moved over 2% higher this week. President Trump is set to deliver a speech later on today in which he’s expected to announce some retaliatory measures on China after they passed a new security law which tightens their grip on Hong Kong. Markets are waiting to see how strong these measures will be; whether they’ll be more token actions or severer steps relating to trade. Any strong measures could see a reversal of risk sentiment which could see the dollar back in favour again (thereby slowing the Euro rally).

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Pound buoyed by improved risk sentiment and Brexit hopes

The Pound has moved higher this morning as market risk appetite improves and after reports indicate the EU might be ready to make concessions on UK fisheries. Reuters have reported this morning that the EU might be willing to flex on their strict stance on trying to maintain the status quo on fisheries after the UK leaves the EU. Although their ‘level playing field’ red line is the most concerning issue, it’s still encouraging they’re starting to move on their negotiating positions and this has provided more optimism around Brexit trade talks, which has boosted the Pound. An increase in market risk appetite has also supported Sterling this morning as investors become more optimistic about economies re-opening after extensive lockdown periods and increased hopes around potential Covid-19 vaccines. For now, traders also appear to be shrugging off the increasing tensions between the US and China. There can be new twists around this at any time though (particularly from President Trump), so markets will be ready to jump on any new announcements. As a result, the GBP/USD has pushed up by over 1% today and now trades at a 2-week high. The GBP/EUR is up around 0.5% today and at an 11-day high. The UK and EU are set to return for their final round of Brexit negotiations next week before the 30th June deadline (for any transition extension). It’s likely this decision will go down to the wire, so watch out for Pound volatility over the next few weeks.

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Lack of progress in Brexit talks weakens Sterling

Sterling has been moving lower today as Brexit comes back onto the radar and as Britain continues to struggle with Covid-19. Earlier in the day the British government insisted that it was not going to extend the Brexit transition period regardless of the ongoing coronavirus crisis. A potential extension needs to be agreed before the end of June to prevent the UK leaving without a trade deal at the end of this year. Later in the day, it was revealed that the latest round of Brexit negotiations hadn’t gone very well with little progress being made. Both sides continue to maintain their red lines with the EU insisting the UK must adopt a level-playing field for a free trade deal and the UK saying that’s not possible. This has increased concerns of a no-deal Brexit which has dragged the Pound lower. It’s likely that both sides will be leaving things up to the last minute (i.e. end of June) which is likely to keep the Pound under pressure and at the least limit any major upside potential. The UK’s covid-19 death rate has topped 40,000 which is the worst reported in Europe and fears of a major downturn are troubling markets. The Bank of England said that we could see a contraction of around 25% in the second quarter of 2020 which would be the largest annual decline in more than three centuries. More quantitative easing is now widely expected to be announced at their next meeting in June but it seems negative interest rates are off the cards. As a result, the Pound is down around 1% across the board today and has moved below some key levels. The GBP/EUR is down to fresh 6-weeks lows having lost around 2.5% in May. The GBP/USD has slipped to a 7-week low today and is down around 3.5% since the start of May.

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