The Pound (GBP) has been met by some weakness this morning, following a warning from Bank of England (BoE) Governor Andrew Bailey regarding the UK’s future access to EU financial services.
In the Governor’s annual Mansion House speech to the City, Bailey suggested that ‘unrealistic’ demands by the EU are a sign the EU is planning to cut the UK off from its financial markets.
The loss of access to the EU’s financial markets would be a major blow to the UK economy, so its unsurprising to see Sterling weaken on the back of Bailey’s comments.
Financial services were not covered in last year’s Brexit trade agreement, and the EU granted a six-month extension to the transition deal to the UK’s financial services industry.
Looking ahead to the end of this week’s session, it’s clear that the main catalyst of movement in the Euro to Pound exchange rate will be the publication of the UK’s latest GDP figures.
Economists expect the UK economy to have expanded by 0.5% in the final quarter of 2020, down from a record high of 16% in Q3, but enough to prevent a double-dip recession this winter.
However, with a high level of uncertainty still surrounding the last quarter of 2020 as a result of the second national lockdown and increased restrictions in the buildup to Christmas, there is still scope for disappointment, which could weigh down Sterling.
Meanwhile, in the absence of any notable Eurozone data releases, we are likely to see the EU’s vaccine woes remain high on the agenda for EUR investors, potentially leading to some weakness in the Euro as the continent’s vaccination efforts continue to lag well behind the US and UK.
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