The Euro hit a fresh four month high against the USD after EU states finally agreed on a 750 billion Euro recovery fund.
It took nearly five days for the EU countries to reach a compromise on the deal – a mixture of grants and loans – as some less-affected nations disagreed with the amounts been handed out. A deal was expected and largely priced in, however this is a positive for the Bloc and shows solidarity and a commitment to the Union from all member states. This has supported the Euro and also the Pound, as the UK will benefit from increased demand from Europe if their recovery is more pronounced.
In other news, market risk appetite was also boosted after some positive Covid-19 vaccine trials by a UK-based company. This has increased hopes that a vaccine will be available within the next year. A successful vaccine is so key to markets as it is the only thing that can end the ongoing uncertainty the pandemic has caused.
As a result, the boost to risk appetite has weakened the USD leading to a 4-mth high in the EUR/USD and a 5-week high in the GBP/USD. The GBP/EUR has clawed back some good ground and now sits at an 8-day high. Market risk sentiment has been a key driver for the Pound recently and traders will be closely watching for any developments in the geopolitics and also the latest coronavirus case numbers out of the US later on today. Brexit negotiations kick off again today as well.
Geopolitical tensions remain high though and investors will be reluctant to get too carried away with the current positive market mood. UK-Chinese relations have deteriorated after the UK ended its extradition treaty with Hong Kong and decided to remove Huawei technology from their networks. China have vowed to retaliate and markets await their response. Finally, a report on Russian meddling in UK politics is also due for release today.