Sterling had a huge boost last Tuesday as news came out that the UK government had reached an agreement on the divorce bill for leaving the EU. The pound rallied around 2 cents against all major currencies reaching a one year high against the AUD. Reaching an agreement on the divorce bill should kickstart trade talks between the UK and the EU giving markets confidence that the UK will be leaving the EU in 2019 with a trade agreement in place. In the week ahead Theresa May will be meeting with EU officials in Brussels to finalise the divorce bill.
GBP/EUR was boosted last week mainly off the back of the hope of a Brexit deal happening and political concerns still hovering over Germany. The optimism amongst investors over a Brexit deal came as the Times reported there was a ‘breakthrough’ in talks over the Irish border. Markets became increasingly optimistic about progress in Brexit talks.
Angela Merkel failure to form a German coalition government has continued to hold the EUR back. The Eurozone will be keen for this situation to get resolved as the uncertainty will only have a negative effect on the currency.
Sterling rose 0.3% above $1.3500 against the US Dollar on Monday after EY chief negotiator Michel Barnier told European lawmakers that a breakthrough is likely on Monday in Brexit talks as Theresa May arrived in Brussels.
The Euro is trading down 0.5% at fresh daily lows of $1.1830 against the US Dollar as the US Senate approved tax cutting legislation over the weekend and the US factory orders fell less than forecast.
Fiscal stimulus provided by tax cuts is seen boosting the economy and possibly results in the monetary tightening beyond current market expectations. Higher interest rates are expected to boost the US Dollar strongly in short-term.
The US factory orders fell 0.1% over the month in October, coming out better than expected. The US Dollar was under pressure on Friday last week after the news of former security adviser Michael Flynn reportedly ready to testify against Trump for his involvement in Russian case hit the market.
Week Ahead (GMT)
Tuesday 5th December – AUD – RBA Interest Rate Decision
Wednesday 6th Dec – EUR – Non-monetary policy’s ECB meeting
CAD – Bank of Canada Interest Rate Decision
Thursday 7th December – EUR – Gross Domestic Product
EUR – ECB President Draghi’s Speech
Friday 8th December – USD – Nonfarm Payrolls
On Thursday the Gross Domestic Product numbers are released. Any clients looking to buy or sell Euros may want to keep an eye on this release as it has the potential to have a considerable impact on exchange rates.