GBP: Pulls back on Brexit doubts

EUR: EU summit begins this evening

USD: NYC schools close

Sterling

Cable has shrunk back from the highs reaches yesterday although remains at elevated levels. The move higher to 1.33 in GBPUSD and above yesterday came as Brexit news continued to point to a deal in the coming weeks although today’s EU summit will not be the stage for the great unveiling of a UK/EU trade agreement.

The pullback overnight has come after a Times report that EU leaders are pressing the European Commission for greater no deal planning for European businesses. Similar noises have been made by UK companies for a number of months but the issue remains clear; deal or no deal international trade will be more difficult and necessitate more red tape given our departure from the customs union and the wider single market.

Sterling has not reacted much to the news that the UK is ready to sign a trade deal with Canada that mirrors the access the UK benefited from through the EU/Canada deal. As a reminder, total trade with Canada represents around 65% of the total trade the UK currently does with Spain.

Euro

The single currency has held up well overnight and is not playing along with some of the swings that we have seen elsewhere. As we head into today’s EU summit, Brexit was meant to be top of agenda but that has been replaced given the lack of agreement between the UK and EU with the EU recovery package that also is suffering from a lack of agreement.

Both Hungary and Poland have voted down the deal – the vote needs to be unanimous – and without agreement the European recovery outpacing those elsewhere is very much in doubt. The summit begins at 6pm CET tonight with an update on Brexit due tomorrow morning that may be the first real sign from the EU as to how well the past 3 weeks of negotiations have gone.

US dollar

Dollar is stronger this morning as further lockdown measures in the US generated some selling pressure in US stocks into the close yesterday evening. Schools will be closed in New York City which has a notable economic effect alongside rising hospitalisations and the knowledge that stimulus is likely not coming until the Biden administration take their seats on January 20th.

For all the back and forth around furlough here in the UK it is worthwhile remembering that the average worker in the US has received a sole $1200 cheque throughout this entire crisis.

Despite decent retail sales data yesterday the overall expectation that the US economy is in reverse currently should keep the USD from declining too much from here.

Elsewhere

The main story in markets today is likely to be the Turkish central bank’s interest rate decision. Expectations vary from 150bps to 600bps of interest rate tightening by the new governor and the subsequent market moves will make for interesting watching.

Have a great day.