Ranko Berich (Monex Europe) | “The uninspiring sterling reaction to today’s confirmation of a trade deal is looking like a classic case of “buy the rumour, sell the fact”. After weeks, months, and years of back-and-forth, it seems the confirmation of the deal was mostly as expected by markets and as such is not a game changer for sterling. Other factors, most importantly Covid-19, will now once again begin to drive the outlook for the pound.
“The details of the deal will be digested by markets over the coming weeks, after traders have finished digesting Christmas lunch. Given the lack of fanfare over services provisions, the EU has likely retained the prerogative for equivalence recognition, importantly for financial services. If this is indeed the case this deal is at best a disincentive for investment in financial services in the UK, and at worst hangs a sword of damocles above the City and the wider economy.
“Looking ahead, the outlook for sterling will now be determined in the short run by how quickly the economy can re-open and recover following the latest worsening in the domestic Covid-19 situation.”