After holding on to its late gains on Wednesday in in morning trading, Sterling has fallen aggressively on a report from Reuters that the UK and EU are still far apart on the key issue of state aid in Brexit trade talks. The executive European commission wants the UK to agree to broad state aid rules that would be compatible with those the EU has, but the UK wants to control its subsidy regime and says that state aid clauses are not usually part of free trade agreements. Reuters reported that an EU official who is involved in the talks was not confident of an agreement on this key issue. The Pound has fallen 0.7% since the news broke.
In a sign that the ECB could be ready to follow the Federal Reserve Bank’s lead, Bank Christine Lagarde hinted that the Central Bank is considering ditching its current policy that targets inflation of “ below, but close to 2%” to allow prices to run above target.
The Dollar began the day under pressure as better economic data and fresh hopes of a fiscal stimulus deal encouraged traders to invest in risker currencies. US treasury secretary Steve Mnuchin told reporters that progress had been made with House speaker Nancy Pelosi on Covid relief legislation. This along with strong manufacturing and employment data helped equities rise and the dollar fall to a week low against a basket of currencies.