- Pound (GBP) is under pressure amid worsening UK – China relations
- Public sector net debt, retail sales and PMI’s later in the week to drive movement in the Pound
- EU summit close to reaching an agreement on EU recovery fund
- Pound Euro exchange rate trades below €1.10
The Pound Euro exchange rate (GBP/EUR) is heading southwards at the star of the week, extending losses from the previous week. The pair plunged 1.5% across the previous week settling on Friday below the key psychological €1.10 level. At 05:15 UTC, GBP/EUR trades -0.1% at €1.0960.
Politics are weighing on the Pound as Foreign Secretary Dominic Raab risks a wider confrontation with China after dropping a heavy hint that the UK will suspend its extradition treaty with Hong Kong, a former colony which it handed back to China in 1997.
The move would come following the banning of Huawei equipment in post Brexit Britain and the possible sanctioning of China over human rights issues as relations between the UK and China deteriorate.
The Chinese ambassador to London accused Britain of bowing to American pressure and threatened retaliation.
This week, data wise it is relatively quiet. UK public sector borrowing could draw investor’s attention on Tuesday, whilst retail sales and flash PMI readings at the end of the week could also drive movement in the Pound.
The Euro rose strongly across the board in the previous week and remains on an upbeat footing as investors hold onto hope that the deadlock over the EU recovery fund will get resolved in the EU leaders summit. The Fund is aimed at providing support to those EU countries most severely hit by coronavirus, such as Italy and Spain. The Netherland, Sweden, Austria and Denmark are opposing the programme in its current form. They want to see the fund more geared towards loans rather than grants.
So far the two sides have been unable to reach an agreement. Investors are confident that they will find a way around this issue, or a compromise as leaders continue into a third day of talks. If a deal based on loans and grants was agreed it would be a historic moment for the integration of the EU.