The Pound was showing a 0.5% gain on the US Dollar as of the late London morning, and the UK currency was also making gains versus the Euro, Yen and other currencies. Several factors appear to be at play. One is the rebound in equity markets, which, if view edas a revival of the Covid vaccine rally, is a positive for the Pound, with the UK having large pre-orders of the Pfizer candidate vaccine.
The European bourses have recovered and are mostly in the green, albeit slightly having pared gains, with the GER30 up about 0.1%, though the UK100 is -0.6% lower. European stock indices are racking up gains of over 0.5% and USA500 futures are up by nearly 1%, nearly reversing all of the closing losses that the cash version of the index saw on Wall Street yesterday. The UK saw the biggest peak to trough drop in its GDP this year out of the G20 economies, so it may benefit most in the route out of the crisis.
Another consideration is the political developments on Downing Street, with the departure of the government’s director of communications, and news that Dominic Cummings will leave his advisory role by Christmas, being read as a weakening in the influence of the ‘Vote Leave’ campaigners, meaning there could be a softer, more pragmatic attitude to Brexit, although it is not yet clear what shape the new administration set-up will take. As for the ongoing negotiations, there is still no breakthrough with only about a week to go to the ‘final final’ deadline.
Evidently, given the Pound’s performance, the prevailing market expectation remains that there will be a last minute climbdown and the two sides will strike a deal, which is what is anticipated. Both sides will have to make concessions if a deal is to be achieved. All things Brexit go down to the wire, and neither side has been willing, as yet, to make the first move in the concession game. Too much is at stake for both sides, surely, for there to be a failure in statesmanship. It should also be clear that the UK government has the option of exiting the common market in close alignment to EU rules and then diverging in an evolving process over time. The promise of future divergence would serve to mollify the powerful faction of Brexit ideologues.
There is also the possibility of there being a ‘technical delay’, though the political mood seems set against this. UK media, meanwhile, have been increasingly highlighting the likely disruptive impacts to cross border trade that are likely to be seen when the UK leaves the single market and customs union in just seven weeks’ time.
Cable posted a high at 1.3185, which recouped nearly two thirds of yesterday’s decline, while EURGBP dropped to levels under 0.9002, correcting from yesterday’s high.
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Andria Pichidi
Market Analyst
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