Good morning,

At the close of trading in London yesterday, the pound had staggered up from the floor after two days of chaotic fear selling. A staggering drop of 1.40% against the euro and 1.65% against the dollar, predominantly caused by the first trade deal exchanges between Johnson and Barnier, meant that the ‘Boris bounce’ had well and truly ended – as far as foreign exchange goes anyway.

As mentioned in previous articles, the key mover of the pound this year, aside from Bank of England rate decisions would be the progress of the vital free trade talks in the transitional period between the UK and EU. The market’s reaction to Johnson announcing he was not looking to align with any of the EU’s directives and would happily pursue an “Australian-style” agreement if he could not obtain a Canada style arrangement was one of disbelief. Essentially, the Aussie style trade deal mentioned is just a rephrased version of WTO terms, aka, no-deal. Seeing as this was the reaction on day one of 335, sterling looks set for its bumpiest year yet as far as Brexit goes.

By 09:00 GMT, however, the short-term impact seemed over at least; as the pound bounced back from the catastrophic sell-off and looked repair some of the damage done. At the time of writing, sterling has rebounded 0.85% on GBPEUR and 0.90% on GBPUSD – the key factor not being that any staggering breakthrough had been made – but rather long-term traders of the pound piled back in to take advantage of cheap market entry.

Elsewhere, we have retail sales figures out at 10:00 GMT in the Eurozone and, as these are December’s Christmas figures, such as in the UK, a poor reading will likely knock some wind out of the Euro. In the USA, inflation figures and preliminary jobs figures are released at 13:15 GMT – the latter being an important forerunner to the critical non-farm payrolls figures released Friday.

Have a great day.

Author: Joshua Haden-Jones, Senior Relationship Manager


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