The Pound has advanced against most major currencies after some positive reports on Brexit talks but gains are being limited by renewed turbulence in the financial markets as covid-19 infections rates continue to rise rapidly across Europe.
Yesterday Bloomberg reported that EU and UK negotiators had “made progress toward resolving some of the biggest disagreements in Brexit talks” and that “a deal by early November is possible if differences can be bridged”. This follows the latest intensive round of negotiations in London where it’s been reported both parties are working on an agreement to deal with the level playing field and state aid issues. The newswire has supported Sterling but traders are reluctant to get too carried away as “progress” isn’t necessarily a full breakthrough and it’s likely that if any major concessions are to be made, then it won’t be until the last minute (which might include fisheries).
Pound gains have also been limited by heightened risk aversion in the markets as investors worry about the economic impacts of fresh lockdown restrictions being imposed across Europe as a second wave of covid case rocks the region. Although we’ve seen some stability today, stock markets have been ravaged over the past few days as investors run for shelter and seek perceived safe haven assets such as the USD, Yen and Swiss Franc. It seems very unlikely this second wave will have the shock factor and impact on the markets like it did in the spring though. Traders eyes tend to focus more on one major event at a time and we’d expect more focus to turn onto next week’s US election results.
US voters are hitting the polls ahead of next Tuesday’s presidential election and the polls are continuing to point towards a Democrat victory for Joe Biden, although the lead is tight in certain key swing states. Uncertainty will therefore remain up until next Tuesday and possible even in the aftermath should there be any complications to the results. Opinions vary over how the dollar will move with a Biden victory and a lot will depend on how much control they have over congress (Senate and the House of Representatives). Biden would be expected to boost fiscal stimulus to deal with the coronavirus fallout which would help the US recovery, however, he would also be likely to increase taxes which would be a negative for investors.
As a result, the GBP/EUR has touched a 7-week high this morning. The GBP/USD has clawed back a cent from yesterday’s low with the market remaining under the 1.30 mark for now. Next up we have the European Central Bank interest rate meeting this afternoon. They’re expected to hold off making any new changes although it’s likely they might hint towards more action in December (particularly with the new lockdowns in France and Germany).