Sterling felt the pressure again on Thursday as UK-EU relations came to the fore

7 February, 2020

Simon Eastman

According to reports, the EU might be looking to renege on concessions made to the UK when the MiFID II rules were written, so they would no longer apply once the transition period is over and the UK’s financial position would be weakened on the global stage.

Financial services are a major part of our GDP so anything affecting this is clearly going to affect the value of the pound, which we saw yesterday. Sterling, managed to stay fairly rangebound still against the Euro, but fell nearly a cent against the US dollar over the day.

Boris Johnson is proposing either a Canada style deal or Australian, which both come with major downsides. Canada is a Trade Only deal, meaning a major part of our GDP wouldn’t be covered, in the services sector and the Australian style deal, is a neatly packaged way of saying no deal, as they have no trade agreement with the EU, doing most of their trade with Asia. So with a limited amount of time to get a deal done and relations seemingly coming under mounting pressure between us and the EU, we could be in for a rocky road ahead when it comes to exchange rates.

The US dollars gains were helped by upbeat Us data and fresh optimism given Donald Trumps latest victory surrounding his impeachment, plus with the global concern to the coronavirus impact on global markets, as a safe haven, the dollar is reaping the benefits. If you have a dollar requirement in the near term, it might be prudent to look at securing that sooner rather than later.

GBP/EUR may be trading in a tight range currently, but the warning signs are there still and a downward shift could easily happen if relations continue to crumble. That said, rates are still close to some of the best in 3 years currently so although we have seen higher around the election period, now is not a bad time to take advantage, especially given just a few months ago we were 12 cents lower!

Today we end the week with a raft of key US releases including the all-important non-farm payrolls at 1.30 pm alongside average earnings and unemployment rate. Better than expected figures would likely see the dollar gain yet further ground. For anyone buying further north in the US, Canada releases their unemployment data, average earnings and the Ivey PMI index at 3 pm.