Forex Focus
The Eur to GBP exchange rate was testing support at 0.8950 after giving up the 0.9000 level on Wednesday. EURGBP is trading against a backdrop of Brexit talks and today sees the start of a two-day central banker summit, where Fed Chair Jerome Powell will both give formal speeches. The Euro is also seeing weakness after a rise in Covid-19 virus infections in France, with cases reaching a four-month high this week.
Powell and the Federal Reserve adopted a more dovish tone than expected in the recent FOMC minutes and the bank are aware of their involvement in the recent stock market exuberance and rally in commodities. The attempt to cool market expectations over policy saw a rally in the U.S. dollar and this could add to Euro weakness. BoE Governor Andrew Bailey will talk on Friday and the market has been on the lookout for clarity regarding negative interest rates in the U.K., but it is unlikely to be discussed this week.
The pound is strengthening against the Euro despite reports that Germany has scrapped plans to meet with EU ambassadors due to the lack of progress in trade talks. The talks have an official deadline only two months away and this could lead to volatility in the EURGBP. Traders are still confident that a last-minute deal can be found after that outcome was re-iterated by chief negotiator Michel Barnier. Officials have many other issues to deal with at the moment and will not want Brexit to drag on as it did in the previous years.
The EUR to GBP exchange rate looks heavy after yesterday’s drop and the likelihood is for the price to break the 0.8950 level with 0.8870 support being the first target. If that price gave way then a much larger drop is possible to 0.8700. A move back above 0.9000 would stave off the bear case in the pair.
