- Pound (GBP) trades under pressure as no deal Brexit looks increasingly likely
- Sunday deadline looms
- Euro (EUR) rises despite ECB easing monetary policy
- German inflation expected to show -0.7% MoM decline
The Pound Euro (GBP/EUR) exchange rate is treading water in early trade on Friday after a steep sell off on Thursday. The pair fell through the key psychological level of €1.10 on Thursday before settling -1.2% at €1.0950, 10 pips up from the 9 week low of €1.0940 hit earlier in the session. At 05:15 UTC, GBP/EUR trades flat at €1.0950.
Brexit remains the key driver for the Pound. Brexit headlines are increasingly more negative as the clock ticks to the Sunday deadline prior to the end of the transition period on 31st December.
Comments from British Prime Minister Boris Johnson that there was “a strong possibility” that Britain and the EU would fail to reach a post Brexit trade deal sent the Pound tanking on Thursday. The comments came after Boris Johnson and EC President Ursula von der Leyen’s dinner earlier in the week where they failed to bridge the remaining gaps. The two sides did agree that Sunday will be the final deadline for a deal.
The two sides remain deadlocked over-fishing rights, governance and the fair playing field. Failure to overcome these differences to a strike deal means that the UK would see trade barriers imposed with the EU its principal economic partner.
The Euro pushed higher across the board on Thursday despite the European Central Bank easing monetary policy further.
As expected, the central bank expanded the PEPP by €500 billion and extended the programme until March 2022. The move was very close to market expectations so didn’t add any pressure to the common currency, which instead moved higher in the aftermath.
The central bank reiterated that it has no exchange rate target and will continue to monitor developments in the FX markets. Let’s not forget that a stronger Euro can hamper growth and drag on inflation.
German consumer price inflation data will be in focus, with analysts expecting a -0.7% disinflation month on month in November.