GBP Reacts to Trade Talks

We reported yesterday that there will be a close watch on any details available from the meeting between Boris Johnson and the European Commission President, Ursula von der Leyen. Interest is keenly pointed at how the trade negotiations will unfold, particularly where the hard stop has been put in place for our departure and then transition period. There appears positive news from the meeting, as comments from von der Leyen positively frame the approach to negotiations reflecting that ‘The more divergence there is, the more distant the partnership has to be. And without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership. We will have to prioritise’. The approach - that is at the very least being discussed (and hopefully executed) is one of staging and prioritising the negotiations to ensure the important items are managed first and so minimising many risks or shocks to both economies and deals. The markets have responded positively to this and the GBP forged over 1.1800 as a result. This is expected to be an ongoing theme of the year, the GBP widely touted to be tied to the progress or lack thereof of the trade talks to a significant degree.

Yesterday, Trump gave a press conference following a retaliation strike from Iran which (while labelled ‘strategically incoherent’) did attempt to downplay the skirmish and assume denouement. It is no secret that Trump seeks a lower USD exchange rate in order to support his export sector globally and this flight-to-safety and into the USD play from investors will hurt this considerably. The motivation, then, to mute the concerns of investors and frame the incident as now being finished and Iran ‘appearing to back down’ does possibly help this cause a great deal. Elsewhere, we are not far from an anticipated signed Phase One deal for the US to repair trade conversations with China on the 15th January. Should this go ahead, it is likely that we would see a slight easing of global tensions and accordingly a very slightly softer USD as risk ebbs a little from markets.

Yesterday, it has been reported that a global debt crisis could be burgeoning with The World Bank review suggesting that the latest adoption of debt globally has outpaced any of the ‘four waves of debt accumulation’ since the 1970s. Total emerging and developing economy debt reached almost 170% of gross domestic product in 2018 – or $55tn (£42tn) – an increase of 54 percentage points of GDP since 2010. China accounted for the bulk of the increase – in part due to its size – but the build-up was broad-based, and included other big emerging economies such as Brazil. The World Bank said financial turmoil in emerging and developing economies was one of the threats to its forecast of a slight strengthening of global growth this year, from 2.4% to 2.5%.

Key rates at the time of writing:

GBPUSD – 1.3105

GBPEUR – 1.1789

EURUSD – 1.1116

The figures are based on the live mid-market rate, correct as of 08:30 GMT on 09/01/2020, and are provided for indicative purposes only. Live mid-market rates are not available to consumers and are for informational purposes only. The rates we quote for money transfer can be selected via the page on our website ‘Live Money Transfer rates’.

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