Forex Market: EUR/GBP hits a fresh two-week high as Britain formally rejects transition period extension beyond December

EUR/GBP extended recent string of gains and touched fresh two-week highs during early European trade on Monday, as Sterling came under pressure after a report that the United Kingdom would not extend the deadline for trade negotiations beyond December.

The option of extending the transition period beyond the end of 2020 was formally rejected by the UK on Friday. Cabinet Office minister Michael Gove “formally confirmed” the decision during negotiations with EU officials and said in a tweet: “On 1 January 2021 we will take back control and regain our political and economic independence.”

European Commission vice-president Maros Sefcovic said that the UK Cabinet Office minister “could not be clearer.” According to Sefcovic, Gove told him during the video call last Friday that the UK’s stance was in line with “the promise given to British citizens in the election campaign.”

What such a decision means for UK businesses is that they now have several months to make preparations for more restrictive trade conditions with the bloc. British PM Boris Johnson is scheduled to hold talks with EU leaders today to assess how to utilize the remaining several-month period prior to what has already become a hard deadline for the country to leave EU’s single market and customs union.

Also on markets’ radar this week is Bank of England’s monetary policy meeting on June 18th, as the central bank is expected to increase the scale of bond purchases by at least GBP 100 billion amid future economic growth concerns.

As of 6:45 GMT on Monday EUR/GBP was gaining 0.49% to trade at 0.9019, after earlier touching an intraday high of 0.9025, or a level not seen since May 29th (0.9054).

Meanwhile, on today’s macroeconomic front, Italy’s final CPI estimate probably confirmed the preliminary data, according to market expectations. Annualized consumer inflation probably turned negative for the first time since October 2016 in May, slipping to -0.1%. In April, annual consumer prices registered zero growth. The final data by Istat will be released at 8:00 GMT.

At 9:00 GMT Eurostat will report on Euro Area’s trade balance for April. Trade surplus probably shrank to EUR 15.9 billion in April, according to a consensus of estimates, from EUR 28.2 billion in March. Total imports plummeted 10.1% in March, while total exports dropped 6.2% due to coronavirus containment measures introduced by the Member States.

Bond Yield Spread

The spread between 2-year UK and 2-year German bond yields, which reflects the flow of funds in a short term, equaled 62.3 basis points (0.623%) as of 6:15 GMT on Monday, up from 61.1 basis points on June 12th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.8974
R1 – 0.8999
R2 – 0.9023
R3 – 0.9048
R4 – 0.9073

S1 – 0.8950
S2 – 0.8925
S3 – 0.8901
S4 – 0.8877