The pound started the week strongly as news broke on an effective COVID-19 vaccination being produced by Pfizer and that the UK Government had pr-ordered 40 million doses. This is by far the highest order compared to population size meaning that the UK economy is now on course to recover faster than its western world counterparts. This led to the Pound being the second best performing G10 currency last week with only losing out to the New Zealand Dollar. Though the Pound did stutter at the back end of the week as the Brexit negotiations stalled with reports of no break throughs on key issues and the possibility of another extension. But with the departure of Dominic Cummins from number 10 many analysts are predicting this could be the catalyst for a deal to be made with Europe.
EU ministers will be holding video conferences this week with the most the important meeting coming on Thursday with the Leader’s conference. If a deal is to be announced, then it should come on Thursday and if not, Sterling will take a leg lower as a no deal scenario grows far more likely. If nothing is announced, then the next key event will be the European council meeting on the 10th and 11th of December where either a last-minute deal could be announced, or the deadline could be extended into 2021. Away from Brexit, BOE Governor Andrew Baily will speaking on Tuesday at event held by City UK where the market’s will be watching for comments on future BOE policy. The only notable data for the UK this week comes on Wednesday with the release of CPI predicted at 0.6% after a previous reading of 0.5%.
The fallout from the US election continued last week with almost all world leaders congratulating Biden on victory though Donald Trump has yet to concede victory. Markets have largely ignored Trump’s accusations of election fraud by the Democrat party but tensions carry on rising in the states and any indication of Trump refusing a peaceful transfer of power will lead to dollar weakness as it creates uncertainty in the markets. A further US stimulus package has yet to be approved but Trump made his first comment on matter since the election as he pressed congress for “a big and focused” package. The Dollar managed to claw back 0.3% back from the Euro over the course of last week but lost 0.15% against Sterling.
The Dollar is likely to be more reactive then it proactive this week as Brexit and conferences from the EU will be the drivers in GBP/USD and EUR/USD. Markets will continue to watch the rising coronavirus case numbers in the states as they have repeatedly hit record daily cases in the last week, most notably just under 188K last Friday. With Joe Biden more likely to enforce lockdown measures when he comes in to power, rising case numbers will cause weakness in the Dollar as the markets try to predict this. On the data front, the only high impact date comes on Tuesday with Retail Sales expected at 0.5% versus a previous reading of 1.9%.
The Euro was the loser from the vaccine news as it fell a percent against both the Dollar and Sterling on Monday. The reason for this was the amount of orders by the EU were far lower versus the UK and US on a dose per population basis. Though the Euro did regain half these losses against the Dollar throughout the rest of the week. Coronavirus cases continued to cause problems on the continent with Germany warning of having to extend their current restrictions throughout the winter and Austria announcing that they will be re-closing schools this week. There were several speeches from Christine Lagarde last week but none of these were impactful on the market and GDP was released slightly short at -4.4% versus a prediction of -4.3%.
This week the Euro could in for further weakness as we expect tighter lockdown restriction to be announce from other nations across the EU. Brexit will also continue to affect the Euro as a deal will be positive for the Euro versus all other currencies apart from the Pound, so like GBP Thursday will be a key date for the common currency. With EUR/USD once again trading towards the 1.20 level there will likely be comments from ECB officials about how the Euro is overvalued like we saw September from Phillip Lane the ECB Chief Economist. Data wise the Euro is for a very quiet week as no impactful data is being released.
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