GBP/EUR recaptures €1.09 on fresh Brexit optimism

The pound struck higher on Wednesday, buoyed by hopes that the UK and EU may still be able to reach a post-Brexit trade deal.

Sterling looks to be consolidating these gains this morning, with GBP/EUR steady at €1.0904 and GBP/USD stable at $1.2714. GBP/CAD is flat at C$1.7034, while GBP/AUD and GBP/NZD are buoyed at AU$1.8049 and NZ$1.9462, respectively.

Coming up, could we see a deterioration of German business sentiment put pressure on the euro this morning?

What’s been happening?

The pound initially tumbled yesterday, with jitters over Boris Johnson’s announcement of new coronavirus restrictions as well as weaker-than-expected PMI figures weighing on Sterling sentiment.

However the pound subsequently recouped these losses, and closed the European session higher in response to cautious Brexit optimism.

This came on the back of comments from the EU’s Chief Brexit Negotiator, Michel Barnier, as he arrived in London for informal talks. Responding to a question about the possibility of a Brexit trade deal Barnier said, ‘we remain determined to strike a Brexit deal’.

The US dollar also rallied on Wednesday, with the currency extending its recent bullish momentum as second wave fears continued to stoke demand for the safe-haven currency.

At the same time, the euro was placed on the defensive yesterday in the wake of the Eurozone’s own PMI releases.

These revealed that private sector activity in the bloc all but came to a standstill this month, confirming fears that the Eurozone’s economic recovery has stalled in the face of Europe’s coronavirus resurgence.

What’s coming up?

Kicking off today’s session we have the latest IFO business climate index from Germany.

The index has shown a steady improvement in German business sentiment since striking an all-time low in April.

However, in light of Europe’s worrying coronavirus resurgence, could we see a deterioration in business confidence this month weaken the euro?

Meanwhile, the spotlight for GBP investors will be Chancellor Rishi Sunak’s ‘Winter Economy Plan’ later today, with markets eager to see what steps the government will take to help protect jobs through the coming months.

Finally, in the US, the spotlight looks to be on last week’s US initial jobless claims numbers, where another elevated rise in new claims could temper demand for the US dollar.