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Pound slips against euro in first trading day of post-Brexit era

LaToya Harding
·3 min read
Pound coins are seen in the photo illustration taken in Manchester, Britain September 6, 2017. REUTERS/Phil Noble/Illustration
Sterling was down 0.52% against the euro in morning trade at €1.1134, but was 0.09% higher against the dollar at $1.3686. Photo: REUTERS/Phil Noble/Illustration

The pound tumbled against the euro (GBPEUR=X) on Monday, the first full day of trading since the UK officially left the European Union after the Brexit transition period ended on 31 December.

Sterling slipped 1.17% against the euro in afternoon trade at €1.1064, and had shed 0.48% against the dollar (GBPUSD=X) at $1.3608.

With Brexit finally over, traders have turned their attention once again to the spread of the coronavirus pandemic in the UK and Europe.

Firms are bracing for more restrictions across the country, as Scotland announced stricter lockdown rules and prime minister Boris Johnson prepared to set out “tougher measures” in England on Monday.

First minister Nicola Sturgeon announced Scots will be forced to stay at home by law from Tuesday in areas currently under its highest Level 4 tier of restrictions, which cover most of the nation. Essential shopping, exercise and care are among the exemptions.

Firms were told to look again at remote working wherever possible, with the Scottish government considering whether more regulations are needed on business.

The measures, which also include school closures, will apply for at least the whole of January to stop COVID-10 cases surging as they have in London and south-east England.

Watch: Nicola Sturgeon announces national lockdown in Scotland

The pound had initially benefited in the wake of the UK striking a trade deal with the EU on Christmas Eve, after a painstakingly long negotiating period.

European Commission president Ursula von der Leyen and European Council president Charles Michel formally signed the documents two weeks ago during a brief signature ceremony in Brussels.

While the Brexit deal represents a historic move for the UK to independently broker its own trade deals globally, it falls short for financial services, which is a mainstay of the UK economy.

On New Year’s Eve, the pound hit a 32-month high versus the US dollar, continuing its uptrend since the start of November. However, the UK government’s tougher lockdown restrictions have acted as a headwind on the currency, limiting its gains.

Most traders had also anticipated a deal would be reached even as talks dragged on to the last week of the year, limiting the potential upside when the agreement was confirmed.

READ MORE: Booming UK factories 'holding breath' over Brexit deal repercussions

Simon Harvey, FX market analyst at Monex Europe, said that although a Brexit deal “provides little relief” for a beleaguered UK economy, “one risk to a firming pound in the coming trading sessions remains the domestic COVID-19 outbreak, with rumours floating around that more of the UK economy will be subject to tighter lockdown conditions.”

The pound also suffered against the euro on the back of strong manufacturing PMI data on the continent.

Eurozone manufacturing activity hit its highest since May 2018, rising to 55.2 in December from 53.8 in November. The bloc’s performance was boosted by production activity in Germany, the Netherlands, Ireland, Austria and Italy.

Chris Williamson, chief business economist at IHS Markit — which gathered the data — said it was an “encouragingly strong” reading for the sector at the end of the year.

He said: “The solid performance of manufacturing amid the tightening of COVID-19 restrictions in the closing months of 2020 represents a major contrast to the lockdowns earlier in the year, with factories acting as a crucial support to the economy as the service sector is hit by tough social distancing measures.”

Watch: UK’s House of Commons passes Brexit deal