Precise Investors

Saturday, December 10, 2022

Euro gains against Japanese yen following Brexit deal


The euro rose 0.36% to 126.69 yen and added 0.63% against sterling to 0.9044

The euro gained against the safe-haven Japanese yen and Swiss franc on Monday as risk sentiment was boosted by Britain reaching a trade deal with the European Union.

Britain clinched a narrow Brexit trade deal with the European Union on Thursday, just seven days before it exits one of the world’s biggest trading blocs in its most significant global shift since the loss of empire.

What we are seeing is a continuation of the pricing out of hard Brexit risk, said Ulrich Leuchtmann, head of FX research at Commerzbank in Frankfurt.

The news boosted risk taking on Monday – which due to the Christmas holiday was the first full day’s trade since the deal was announced – with German and U.S. stocks hitting record highs.

Risk sentiment also improved after U.S. President Donald Trump on Sunday signed into law a $2.3 trillion pandemic aid and spending package, restoring unemployment benefits to millions of Americans and averting a federal government shutdown.

The euro gained 0.36% to 126.69 yen. It earlier reached a seven-month high of 1.0892 against the Swiss franc, before falling back to be last at 1.0862, up 0.07% on the day.

The single currency was up 0.05% against the U.S. dollar at $1.2226. It gained 0.63% against sterling to 0.9044.

Sterling has underperformed since the Brexit deal was reached, with traders saying that the news was likely priced in.

Also “I would argue that this is markets slowly but surely acknowledging that this is not an optimal deal for the UK,” said Andreas Steno Larsen, global chief FX and rates strategist at Nordea in Copenhagen.

This is rather a very slim deal that merely avoids the cliff-edge but there are still large gaps that will have to be dealt with in 2021 and frictionless trade is not secured, Larsen said.

The British pound dipped 0.15% against the U.S. dollar to $1.3517, and was holding below a two-and-a-half-year high of $1.3625 reached on Dec. 17.

The dollar slipped 0.04% against a basket of currencies to 90.15.

Investors are betting that the dollar will continue to decline after falling almost 7% this year as the Federal Reserve holds rates near zero and the U.S. economy struggles to recover from COVID-related business shutdowns.

Win Thin, global head of currency strategy at Brown Brothers Harriman, expects the dollar index to test its February 2018 low of 88.25. Then “what happens to the greenback after that will largely depend on how well the U.S. controls the virus in 2021 as well as the outlook for further fiscal stimulus,” Thin said in a report.


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