British Pound Hits One-Month High on Brexit Trade Deal Hopes

October 10, 2020
British Pound Hits One-Month High on Brexit Trade Deal Hopes October 10, 2020 Lennox Hamilton

The pound hit a one month high of 1.301 against the greenback Friday as investors received positive update about Brexit trade deal negotiations.

The UK and the EU promised to arrive at a deal by October 15. However, the statement came with a caution. In case, there is no agreement by that time, negotiations will be suspended.

In the meantime, the UK Chancellor Rishi Sunak revealed an extension to the prevailing Job Support Scheme, six months from November 1st. The government has committed to pay 67% of employee salaries, limited to a maximum of £2,100 per month as firms are forced to shut down temporarily due to the pandemic.

Weaker-than-anticipated GDP data rolled out earlier had minimum effect on the pound. The country’s GDP expanded by only 2.1% in August, far below market anticipations of 4.4$, in spite of the government’s measures to back the economy via the Eat Out to Help Out program.

The UK’s imports increased 2.2% from the earlier month to £50.46 billion in August, declining from a 7% increase in the earlier month, as the economy slowly comes out of the Covid-19 jolt. Goods purchases increased 3.7%, while services imports fell 1%.

The country’s exports increased 1.5% from the earlier month to £51.83 billion in August, the same rate as in the earlier month. Services exports increased 2.7% and goods sales increased 0.4%.

The UK trade surplus contracted to £1.36 billion in August, from an upwardly amended £1.69 billion in the earlier month, reflecting the lowest monthly trade surplus in the past five months. Exports rose 1.5% to £51.83 billion, aided by a 2.7% increase in services exports and a 0.4% rise in goods shipments.

Construction output in the UK contracted by 13% y-o-y in August, following an amended 15.6% drop in the earlier month and compared to market forecasts for an 8.8% contraction.

The UK’s GDP expanded 8% in the three months to August, rebounding from five successive months of contraction but missing analysts’ forecasts for an 8.2% growth. The services industry expanded 7.1%, while production increased 9.3%. Construction sector grew by 18.5% as shutdown measures continued to be relaxed.

On m-o-m basis, the economy expanded 2.1%, mirroring the fourth successive monthly rise following a historical drop of 19.5% in April. Still, output stood 9.2% below the levels recorded in pre-pandemic February.

In the meanwhile, the UK and the EU’s Brexit negotiators have kindled hopes of quick breakthrough in discussions. Media reports indicated that a meeting between David Frost, the UK’s chief negotiator, and Michel Barnier, equivalent of Frost, went smoothly and both teams have decided to work out details on Monday.

The UK’s Prime Minister Boris Johnson has openly stated that the EU summit scheduled to take place in Brussels will be the last date for the agreement. Back in September, he stated that without a trade deal, it would be better to “accept and move on”.

Frost echoed the statement made by the UK Prime Minister earlier this week during a parliamentary hearing, but a top level EU diplomat stated that their understanding is quite different after recent discussions.

The EU diplomat said “I don’t detect any readiness on the British side to suspend the negotiations. This is going to continue. It is not a deadline.”

While Brexit discussions are going on, queries have been raised about the Prime Minister’s handling of Covid-19 pandemic and the overall functioning style of government.

Last week, while giving an interview to BBC, Johnson warned that Covid-19 limitations could last until the end of this year, but also stated that the economy should continue to move on.

Things turned worse when the government was cornered to acknowledge that 16,000 confirmed infections were not documented due to technical issue.

Only a week after the universities were reopened, covid-19 cases are rising. Over 1,000 students at Newcastle University have been infected by Covid-19 within eight days. Likewise, 770 cases were reported in the University of Northumbria.

Considering the rise in cases, three universities in North England have suspended face-to-face classes. Investor continue to hope for a good news on Brexit and pandemic.

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