- The British pound was the worst performing G10 currency on Monday, with the GBP / USD pair remaining subdued around 1.3650-1.3700.
- News that France has postponed a deadline for a deal with the UK on fishing rights has not stirred the markets.
- While cross-channel tensions are a key issue this week, whether the Bank of England raises rates or not is another issue.
The GBP it is the worst performing G10 currency on Monday, down about 0.2% against the US dollar, but down about 0.6% against the euro. That has meant that GBP / USD has traded moderately between 1.3650-1.3700 for most of the day, its lowest level in about two and a half weeks. Tensions with France over fishing have escalated in recent days and are largely attributed to Monday’s poor performance.
But the latest news on this front has been positive; According to Reuters, on Monday night, on the sidelines of the COP26 summit, French President Emmanuel Macron announced that his government would postpone the deadline for a resolution of the ongoing fishing dispute with the United Kingdom by one day. Earlier, the French government had said it would implement stricter controls on trucks entering the EU from Britain and would ban British trawlers from docking in French ports from 23:00 GMT on Monday. France claims that the UK has failed to deliver on its promises in the Brexit deal in terms of giving fair access to French fishing boats in UK waters. Talks between the UK and France were ongoing on Monday and Macron said such talks must continue. “We will see where we are tomorrow at the end of the day,” Macron said.
British Prime Minister Boris Johnson’s rhetoric / tone to the press on the escalation of the dispute over access to fishing with France was quite measured, with the prime minister simply promising that the UK will take proportionate action. The UK Prime Minister and the French President will have spent a lot of time in each other’s presence on Monday and for the past few days, given their presence at the G20 (which has now ended) and the start of COP26 (which ends in two weeks) and this finally seems to have led to a relief of tensions. But one day is not long for the two parties to reach an agreement, so the risk of the dispute escalating into an actual legal trade battle remains high and is a key story for GBP traders to watch out for. this week. If France is to go ahead with its threats against the UK, this arguably represents a downside risk (albeit a small one) to the UK economy by further exacerbating supply chain disruptions / bottlenecks than they currently hamper growth.
Another key topic to follow this week is Thursday’s meeting of the Bank of England; economists and money markets are divided on whether the bank will go ahead with a 15 basis point rate hike. There are four aggressive members of the Monetary Policy Committee (the committee of nine who vote on interest rates, sometimes referred to as the MPC) who are likely in favor of an increase, including Governor Andrew Bailey, Chief Economist Huw Pill, Lieutenant Governor Dave Ramsden and outside MPC member Michael Saunders. These members have expressed concern about the de-anchoring of inflation expectations amid the recent rise in the CPI to multi-year highs and amid expectations that this rise will worsen next year. Meanwhile, there are three MPC members, including outside members Catherine Mann, Jonathon Haskell and Silvana Tenreyro, who prefer to wait until at least December to watch the job market develop after the end of the government’s licensing regime in September (great part of the October labor market data will not be available until December). Lieutenant Governors Jon Cunliffe and Ben Broadbent have not yet indicated which side they are on, and their votes will ultimately change whether there is an increase or not.
Technical levels
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