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GBP/EUR: Pound Drops On Covid, Bexit

22nd December 2020

Pound (GBP) continues to monitor Covid, Brexit
UK PM says there are still problems in Brexit trade talks
Euro (EUR) rose as EU consumer confidence improved by more than forecast
German GFK consumer confidence data in focus

The Pound Euro (GBP/EUR) exchange rate is declining on Tuesday paring gains from the previous session . The pair experienced high levels of volatility in the previous session, trading a range of 170 pips before settling towards the upper end of the daily traded range +0.2% at €1.0995. At 05:15 UTC, GBP/EUR trades -0.3% at €1.0956.

Covid and Brexit are the major drivers of the Pound and both bringing more pessimism than optimism to investors.

The new, more infectious strain of covid that is spreading alarmingly quickly across the UK has prompted countries across the globe to shut their borders to the UK causing travel chaos and raising the chances of food shortages just days before the UK is due to leave the EU.

Brexit trade talks continue and doubts are still plentiful as to whether the two sides will agree a trade deal before the 31^st December. Prime Minister Boris Johnson said that there were still problems in Brexit trade talks and that the UK would thrive without a deal.

Unless the two sides can agree a trade deal within the next 10 days the UK will leave the EU on unfavourable World Trade Organisation terms.

Data wise UK GDP Q3 final estimate will be released. Given that this is the final estimate no huge surprises are expected. Analysts forecast +15.5% growth quarter on quarter a strong rebound after the -19.8% quarter on quarter decline in Q2.

The Euro traded higher versus the Pound on Monday. However, it was mixed versus other majors. Consumer confidence in the Euro area rose a modest 3.7 points in December to -13.9, up from -17.6 in November. Analysts had forecast a reading of -16.8.

Sentiment data will remain in focus with German GFK consumer confidence due to be released. Expectations are for sentiment to deteriorate heading towards January as longer tighter lockdown restrictions overshadow any vaccine optimism.