Good morning,
The rocket in the pound strength that we saw at the close of last week, a 3.8% drive, seems to be coming back to earth from these three-month highs as we enter a new week and a looming deadline sinks in with a generous gloss of reality.
Markets topped out on Friday at 1.2707 against the USD, and 1.1499 on the euro, with a strangely placed optimism following comments of “a positive pathway” despite no real substance or support.
European negotiators, after no progress over the weekend, have warned that Johnson’s updates are not sufficient at this stage for a deal. Today’s discussions are deemed the last opportunity to come to an agreement in the lead up to the summit this Thursday.
Economists tracking the Brexit impact on the pound are of course predicting a very choppy week ahead with the highest levels of volatility priced in the last six months. If last week was anything to go by, swings on news announcements with no real substance can move things significantly, since we saw the best two-day rally in 10 years as a result last week.
Elsewhere, the US/China negotiations continue, with “phase one” completed at the end of last week on the outlines of a partial trade deal. Although things are becoming more optimistic on this front, the road ahead is still likely bumpy, and thus if you have USD exposure, it is worth keeping a close eye on things that side of the pond as well as here in the UK.
The key focus today will be on any breaking news between the EU and the UK, with the chances of a deal slimming as each day passes.
Scenario planning for your currency requirements is now necessary more than ever, with the potential range both up and down too wide to ignore. Reach out to your account manager to discuss the options available to you in order to take advantage of the volatile markets.
Have a great week ahead.
Author: Ross Hammond, Senior Corporate Account Manager