Lack of UK-EU trade resolution puts pressure on pound

Lack of UK-EU trade resolution puts pressure on pound


Uncertainty over the continuation of UK-EU trade talks prompted fresh volatility for the pound, with investors still wary of the potential for a no-deal Brexit scenario.

Even so, fresh signs of weakness within the Eurozone economy and new coronavirus restrictions helped to limit the downside potential of GBP/EUR and kept it trending in the region of 1.10.

On the other hand, GBP/USD experienced some sharper movement between 1.28 and 1.30 as political tensions in the US continued to mount, while EUR/USD holds at 1.17.


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What’s been happening? 

Mixed signals over the prospect of further Brexit trade talks drove some significant volatility for the pound as investors braced for the possibility of the two sides walking away from talks.

Support for the euro weakened, meanwhile, thanks to confirmation that the Eurozone inflation rate had fallen deeper into negative territory in September, increasing the odds of further European Central Bank (ECB) action.

While market risk appetite proved limited, this offered the safe-haven US dollar some support against its rivals, with markets still disappointed by the fading prospect of any imminent fiscal support for the US economy.


What do you need to look out for? 

As investors continue to price in the higher risk of a no-deal Brexit scenario, this is likely to keep the pound under a degree of pressure.

Even so, a stronger UK inflation rate and resilient retail sales growth could help to keep GBP exchange rates from sliding in the near term, while any news of Brexit talks progress would provide plenty of upside in the pound.

With forecasts pointing towards another lacklustre month for the Eurozone services PMI, the mood towards the euro looks set to sour further as the chances of a sustained economic rebound fade.

Meanwhile, growing anticipation ahead of the US presidential election may provide the US dollar safe-haven gains. Added to this, market sentiment could sour further if jobless claims figures fail to show improvement in the weeks ahead, coronavirus cases continue surging, and US stimulus remains at an impasse. 


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