GBP/EUR touches three-week high on finalising trade deal hopes

The pound skyrocketed on Monday, striking a new three-week high against the euro on the back of hopes of a UK-EU trade deal being struck this week.

Sterling is struggling to build on these gains this morning, however, with GBP/EUR subdued at €1.1004 and GBP/USD muted at $1.2845. GBP/CAD is flat at C$1.7195, while GBP/AUD and GBP/NZD are holding steady at AU$1.8137 and NZ$1.9587, respectively.

Coming up today, will we see the first televised US presidential election debate stoke some volatility in the US dollar later tonight?
 

What’s been happening?

The pound exploded out of the gates this week, being spurred higher by fresh Brexit optimism.

Sterling surged as reports suggested trade negotiations had entered a ‘tunnel’ and that a post-Brexit trade deal between the UK and EU could be finalised by the end of the week.

This uptrend in GBP exchange rates was strengthened further by comments from Bank of England (BoE) Deputy Governor Dave Ramsden, who sought to dampen expectations that the bank is planning the imminent use of negative interest rates.

The euro, meanwhile, was left mostly flat on Monday as European Central Bank (ECB) President Christine Lagarde warned that the coronavirus resurgence threatens the Eurozone’s economic recovery, and called on governments to increase fiscal spending to help shore up growth.

At the same time, the US dollar was driven lower during yesterday’s trading session, with the safe-haven currency losing a little of its lustre as risk sentiment improved.
 

What’s coming up?

In the spotlight today will be the first presidential debate between Donald Trump and Joe Biden scheduled for later tonight.

Observers are bracing for an eventful debate, which is likely to infuse fresh volatility into the US dollar.

For GBP investors the focus will remain on Brexit today as the latest round of formal UK-EU trade talks get underway today. Will the recent optimism survive as the two sides look to negotiate a finalised deal?

Finally, the euro is likely to face some pressure later this afternoon if Germany’s latest consumer price index confirms fears the Eurozone’s largest economy suffered another month of deflation in September.