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EUR/GBP hangs in the balance of US dollar flows, EU/UK trade talks back in vogue

  • COVID-19 sweeps the UK/EU trade negotiations under the carpet, for now.
  • EUR/GBP will trade in the balance of a safe have bid in the dollar, so trade negotiations could come back to the fore. 

EUR/GBP is currently trading at 0.9088 having travelled between a low of 0.9065 and 0.9141, down by -0.24% at the time of writing, although the prospects for either currency are dim for a flight for safety could eventually support the dollar yet again as the dust settles, weighing heavily on the euro first and GBP as the pandemic hits the UK economy hard. 

In the latest update, Italy has reported 3,526 new cases of COVID-19 and 345 new deaths, raising the total to 31,506 cases and 2,503 dead. The numbers are startling and the European ministers have announced a series of new measures overnight, including EuroGroup finance ministers that are moving toward providing liquidity to the region to combat the economic impact. The UK has been slow to clamp down on the virus and mitigate the spread which is driving investment away from sterling-denominated assets. The euro, on the other hand, is losing its carry trade unwind appeal which is seeing the DXY rally back towards the 100 handle again.

UK/EU trade talks underway, time to pay attention

Another factor for the cross is the talks between the EU and the UK on their post-Brexit relationship which have gone under the radar as they started in Brussels on Monday after several weeks of posturing on both sides, yet no one blinked an eye. It will be a toss-up between COVID-19 headlines and news from the follow-up negotiations between London and Brussels which will now roll out every two to three weeks.

EU’s Chief negotiator Barnier is due to give a press conference on this first stage. “Even though he may attempt to put a positive spin on the outcome, it seems unlikely that many crucial compromises will have been made already. While both sides would like a deal with zero tariffs, the compromises demanded by the EU may be a step too far for the UK government,” analysts at Rabobank argued. 

“Yesterday, Environmental Secretary Eustice warned the EU against denying the UK’s desire to become an independent nation as it would put at risk a trade deal that would benefit numerous nations that do not require access to UK waters. The threat made by PM Johnson that he would be prepared to walk away from the talks and open the UK to WTO rules on trade at the start of next year, is likely to keep GBP investors worried.”

EUR/GBP levels

 

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