The Pound is strengthening today after experiencing wild swings at the end of the week as contradictory reports from the UK and EU over Brexit talks drove volatility.
Brexit and BoE Rate Speculation Drive GBP
The Pound started the week strongly as fears that the Bank of England (BoE) would take interest rates into negative territory were played down by several key BoE policymakers.
BoE chief economist Andy Haldane in particular gave GBP exchange rates a lift as he attacked economic pessimism in the media, saying ‘encouraging news about the present needs not to be drowned out by fears for the future’.
The Pound ended the week fluctuating between emerging Brexit headlines from the UK and EU.
President of the European Commission (EC), Ursula von der Leyen, announced the EU would be taking legal action against the UK over its Internal Market Bill violating the Withdrawal Agreement. However, this was countered by reports a UK-EU trade deal is close to being agreed.
The Euro traded lower through the week despite better-than-expected German retail and unemployment data.
EUR exchange rates trended lower following comments by European Central Bank (ECB) President Christine Lagarde, warning of the fragile Eurozone recovery and the challenges of weak inflation.
These challenges were highlighted on Friday as the Eurozone suffered a second straight month of deflation as inflation hit -0.3%.
Meanwhile, the US Dollar struggled through much of the week in upbeat trade. However, market sentiment soured on Friday, boosting safe-haven USD, after Donald Trump tested positive for coronavirus and hopes faded of a bipartisan US fiscal stimulus package before the US election.
GBP/EUR Exchange Rate Outlook: UK-EU Trade Talks in Focus
Reports of progress in the UK-EU trade talks will likely continue driving Pound movement next week following Boris Johnson’s meeting with EC President Ursula von der Leyen to discuss the next steps on Saturday.
Added to this, GBP traders will also be looking releases of September’s UK Services PMI and Construction PMI. If business and building activity remain robust while August’s GDP shows a strong month-on-month rise, the Pound could find support.
At the same time, the Euro will be driven by data from the Eurozone’s retail sales, and Germany’s factory orders and industrial production.
Any signs activity began to slow as more coronavirus restrictions come into force in Europe will likely apply pressure to EUR exchange rates.
Following the developments at the end of this week, the US Dollar could find support in safe-haven demand as markets retreat after Donald Trump tested positive for coronavirus a month before the US election and stimulus hopes appears to have fizzled out.