Fresh UK-EU row erupts as Barnier mocks Brexit Britain

• British pound (GBP) hits fresh highs against the euro (EUR) and the US dollar (USD) as Joe Biden takes office
• Euro (EUR) reclaims some of its losses after ECB monetary policy meeting
• Post-Brexit UK-EU row erupts over Britain’s refusal to grant an EU ambassador diplomatic status
• Brexit disruption reduces freight traffic by a significant amount in 2021

Pound Sterling (GBP) rallied to a fresh 32-week high against the US dollar (USD) on Friday as US President Joe Biden’s US stimulus promises added optimism over COVID-19 vaccine rollouts.

The British pound to US dollar (GBP/USD) exchange rate has cemented itself above the USD 1.37 level and is currently trading 0.43 higher at USD 1.3711, albeit Cable rallied to USD 1.3745 earlier during the morning session.

GBP/USD is now trading near its highest levels since April 2018, and the UK’s lead in the COVID vaccine game could drive the currency pair higher over the coming days.

Yesterday, the UK government confirmed that more than 5 million people had been inoculated with the Pfizer/BioNTech jab or the Oxford/AstraZeneca vaccine in Britain, putting the country on track to achieve its 15K target by mid-February.

Foreign exchange (FX) market participants hope that if the UK continues to vaccinate at an accelerated pace, Prime Minister Boris Johnson will lift lockdown restrictions on a more permanent, stable basis.

Certainty around Brexit and hopes for Joe Biden’s USD 1.9TN stimulus package being passed by Congress is also supporting pound Sterling (GBP) on Thursday.

The United States also posted positive US jobless claims data today as the number of people filing for unemployment benefits reduced during the week commencing January 11th.

According to official statistics, initial US jobless claims fell by more than 151,000 last week from 1.1 million to 960,668. While the figure remains painfully high, many hope that these numbers will continue to decline as the Biden administration has prioritised reversing the pandemic-induced damage.

Renewed confidence in global economic recovery has seen equity markets surge to record highs and riskier assets such as the British pound (GBP) rally at the US dollar’s expense (USD).

However, the British pound (GBP) appears to be having some trouble breaking past a critical resistance point against the euro (EUR).

After numerous attempts to cement itself above the EUR 1.13 level, the British pound to euro (GBP/EUR) exchange rate has fallen back to EUR 1.1288, partly due to the European Central Bank’s (ECB) less dovish outlook on the EU and fresh Brexit headwinds.

ECB relatively optimistic in monetary policy meeting

The European Central Bank (ECB) left its main policy settings and interest rates unchanged on Thursday as expected by FX market participants and economists.

The ECB also appears to have changed its tone towards the euro’s (EUR) strength, leading investors to believe that the central bank is more willing to tolerate an appreciation in EUR/USD.

ECB President Christine Lagarde said that the EU had much to be optimistic about, referring to vaccine rollouts, US stimulus plans and political certainty surrounding Brexit.

However, the governing council signalled that it would not hesitate to ramp up stimulus measures in the future if needed, given that COVID-19 cases across the Eurozone remain stubbornly high.

Economists have also expressed concern over the bloc’s recovery outlook as according to ECB forecasts, EU gross domestic product (GDP) shrunk by 7.3% in 2020.

Data released on Wednesday also revealed that Eurozone inflation remains well below the ECB’s 2% target.

According to EU statistics, Eurozone inflation remained stuck at -0.3% in December, and with lockdowns being extended across the bloc and new mutant strains of the virus emerging, the ECB could be facing a dilemma.

However, Chief Eurozone Economist, Claus Vistesen said the ECB has put “enough firepower on the table already”, and that downside risks to the economy are less pronounced.

The news appears to have lent some support to the euro (EUR), which has reclaimed some of its losses against pound Sterling (GBP) heading into the North American session.

Investors are also reacting to news of a new UK-EU row, which erupted after Britain was accused of wrongfully denying an EU ambassador full diplomatic status.

Post-Brexit row erupts between the EU and the UK

A UK-EU row has broken out on Thursday due to politics over giving an EU ambassador diplomatic status in Britain.

According to newswire reports, the UK has refused to give EU Ambassador, Joao Vale de Almeida, diplomatic privileges and immunities as the European Union is not a nation-state.

The European Commission has criticised the UK’s actions and said that all of its representatives in other parts of the world had been granted the equivalent status to that country’s embassy.

Former Brexit Party MEP, Alexandra Phillips, says the “UK-EU row merely highlights the EU’s desire to become a super state as it wants to be treated like a country rather than a 27-nation trading alliance.”

EU Chief Negotiator, Michel Barnier, bit back at claims and said Brexit had exposed the “consequences” of leaving the European Union. He mocked Brexit Britain and said that the UK’s departure from the EU has only strengthened unity within the bloc.

His statement comes after French President, Emmanuel Macron said that if France held a Brexit referendum, the country would vote to leave.

While Emmanuel Macron champions European integration and was often demonstrated fiercely opposed to Brexit, he said anti-EU sentiment is growing in France.

However, other commentators have said that the chaos that emerged over securing a Brexit deal may have silenced Eurosceptic voices for a while.

But it is still early days, and some economists believe Brexit Britain could become an attractive market for global investors as the UK economy undergoes a reform, which could encourage other countries to follow suit.

At the moment, new Brexit trade rules are causing disruption to UK business operations, with many reporting delays at the border and increased costs.

Freight traffic declines as Brexit sends costs soaring

According to Sky News, freight traffic between Britain and the EU has slumped following Brexit due to a hike in transports costs and friction at the border, which has forced small businesses to half exports to the bloc.

The volume of lorries travelling from the UK to EU countries, including France, Ireland, and the Netherlands plummeted by 61% in the first week of January.

Industry leaders have called for government intervention and have urged Downing Street to offer businesses a lifeline to prevent freight jobs being lost.

However, the UK government spokesperson has responded saying: “Goods are flowing effectively between Great Britain and Northern Ireland and there is no disruption at Northern Ireland ports.”

That being said, the UK government has introduced a GBP 200 million trader support service to help traders adapt to new Brexit trade rules.