While the pound was able to rally following Prime Minister Boris Johnson’s landslide victory last week, recently the British currency has suffered some losses. This follows Mr Johnson’s announcement on Tuesday that they had ruled out any extension to the December 2020 deadline for a trade deal with the EU. The newly amended Withdrawal Agreement Bill is expected to be debated in parliament on Friday, where the Prime Minister is likely to get a majority.
Commenting on this, Commerzbank’s Currency Strategist, Thu Lan Nguyen said: “This is a correction of the election euphoria, slowly but surely, as the realization sets in that this whole Brexit drama is not over yet and just another deadline of a hard Brexit will be looming eventually at the end of the year.”
Looking ahead, the Bank of England’s (BoE) monetary policy meeting is in focus on Thursday.
While the bank is unlikely to introduce any easing measures thanks to today’s inflation data coming in below target, if policymakers are overly dovish, Sterling could extend its losses.
Brexit is also likely to remain in focus for BoE Governor Mark Carney, and an increase in Brexit pessimism could send the pound even lower against the euro.
Meanwhile, inflation in the Eurozone rebounded from October’s annual rate of 0.7 percent to 1 percent in November, leaving the euro holding steady against the pound.
The 19-country bloc saw prices rise as the cost of food increased at a steeper pace in line with estimates published at the end of November.
Additionally, IFO predicted the bloc’s largest economy will expand by 0.2 percent in the final quarter of 2019.
In the third quarter, Germany only expanded by 0.1 percent as the country narrowly avoided a recession. However, the economic institute noted that the industrial sector remained in recession and would take time to emerge from the current downturn.
The single currency was provided with support as IFO economist, Klaus Wohlrabe, noted that the announcement of a US-China trade deal had pleased German exporters while the Conservatives’ landslide win in the general election increased the clarity on Brexit.