11/12 – Sterling balanced on a knife edge

Jeremy Thomson-Cook
Jeremy Thomson-Cook 11 December 2020

GBP: A weekend to govern sterling

EUR: ECB mindful of euro’s rise

USD: No sleep til stimulus


Heading into the weekend, the mood music around the UK’s ability and/or willingness to agree a trade deal with the European Union is set to weigh further on sterling. Comments from the Prime Minister that there is a “strong possibility” no post-Brexit trade deal will be struck with the EU, that Brussels’ current offer “isn’t right for the UK” and that a no-deal divorce – would still be “very good” are not new but coming this late in the game has frightened some of the horses.

The cost of hedging against falls in sterling over the next three weeks i.e. taking us just into the new year, are at their highest level since the aftermath of the referendum in 2016. That is not a sure-fire reason for sterling declines in itself but shows that investors are preparaed to pay increasing costs to protect their assets against a sudden fall in the pound. Of course, if there is a deal then the rally for the pound will be much larger.

Needless to say, if there is a deal the headlines will likely focus on the political hoops that the parties had to jump through, the compromises and the precedents set by the last-minute arrangements. We instead will be looking at any deal through the lens of what it means for UK businesses; how have rules of origin policies been agreed? What tariffs will apply to what industries? Can you still transfer data into and out of the EU as you used to?

As soon as a deal is announced, we will tell you what it means for you and your business as well as what it means for sterling.


Yesterday’s European Central Bank meeting was a lesson in the stultifyingly boring. Sometimes central banking needs to be boring of course, and the ECB carried such a task off with aplomb. Never has the announcement of EUR500bn of stimulus been more underwhelming.

Issues remain for the central bank, in particular, its ability to keep the euro at levels that it deems reasonable especially against a weakening USD. 2021 will see further upside for the euro in our opinion and the rising single currency will be more of a problem as time goes on. For now, there is nothing to be worried about.

US dollar

So much for the dollar’s recovery; the USD is in reverse gear once again as we head into the weekend, knocked lower by the logjam in Washington around stimulus. Conversations around stimulus have been dollar positive as they’ve broken down but the belief remains that should Congress not be able to agree something then the Fed may have to step in. Such pressure will always keep the USD offered.

Conversations around the Senate passing a bill to keep the government fully funded and government spending programs open are also increasing and we expect a deal on that tonight, although only as an extension of current spending levels for a week or so.


There are more commodity moves set for 2021 but the broad recovery trend of stronger industrial inputs is happily intact currently. Subsequently AUD, CAD, NZD and RUB remain well supported.

Have a great day and a better weekend.