The pound suffered slightly yesterday as a the fourth round of Brexit talks began. However, despite UK and EU sides meeting there has been little sign of a breakthrough on either side as both stick stubbornly to their positions. The transition period, during which the UK is expected to agree to a trade deal with the EU, is expected to come to an end on December 31.
While many are pushing the government to extend the December 31 deadline to allow time to deal with the economic repercussions of coronavirus, the UK government has put its foot down.
Downing Street has said that a delay would “prolong the delay and uncertainty” of Brexit.
Today, the pound is currently trading at a rate of 1.1181 against the euro according to Bloomberg at the time of writing.
This is a massive plunge compared to yesterday’s rate of 1.1231.
Pound to euro exchange rate: Sterling ‘dips’ as post-Brexit progress comes to standstill
Pound to euro exchange rate: The pound is currently trading at 1.1181 against the euro
The GBP is now trading below the 1.12 handle, leaving it in a vulnerable position as the ECB announces its new policy decision today.
“Sterling traded in a rather lacklustre manner against the common currency yesterday, dipping just below the 1.12 handle in rather uninspiring trade, as investors continued to closely monitor the progress of post-Brexit trade negotiations.
“Today, attention will centre on the ECB’s policy decision, with significant expectations for the Bank to ramp up asset purchases while leaving policy rates unchanged.”
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George Vessey, Currency Strategist at Western Union said that more people are now betting that the pound will fall in the future.
He said: “The currency market’s net short position on the pound has increased for 12 weeks in a row according to weekly positioning data.
“This means more and more traders are holding positions on betting the pound falls in the future compared to positions betting on it rising.
“The last time traders were so bearish on sterling was in the run-up to the general election in December last year, which resulted in the pound flying to $ 1.35 from around $ 1.30 in a just a few days as those positions were unwound.
Pound to euro exchange rate: The GBP is now trading below the 1.12 handle
“The positioning data is taken from the Commodity Futures Trading Commission’s (CFTC) weekly report, which provides a breakdown of the net positions for ‘non-commercial’ (speculative) traders in US futures markets.
“The report is considered an indicator for analysing market sentiment, which appears to disfavour the pound at present.”
Mr Vessey added that the report could “open the door” for sterling.
“However, with net short positions rising, this actually opens the door to greater upside risk for GBP,” he said.
“If we see sterling strengthen this week following more optimistic UK-EU trade talks, then an unwinding of these short positions could accelerate sterling’s upward momentum.”
He added that there are many factors which could impact sterling in the coming days.
“The catalysts for sterling’s appreciation appear very limited though.
“The downside risks outweigh the upside risks given the continued uncertainty and deadlock surrounding Brexit negotiations, which conclude this week, the debates about negative UK interest rates and soaring government debt.
“However, the overall positive risk sentiment is dominating financial markets, which is helping riskier assets climb.
“Thanks to unprecedented monetary and fiscal stimulus and optimism about an economic recovery now lockdowns are being eased, equities continue to rally, oil prices remain firm and riskier currencies, including sterling, continue to rise.”