GBP/USD Nears 3-month Highs as Brexit Optimism Returns

GBP/USD Nears 3-month Highs as Brexit Optimism Returns

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Key Takeaways

• Hopes for a soft Brexit deal
• The Sterling moves strongly

The European Union and the United Kingdom remain optimistic about Brexit as the parties are now in the endgame phase of the negotiation process. Despite going over informal and formal deadlines multiple times, and the numerous failed attempts at reaching an agreement about the red lines, the UK and EU are hopeful that they will be able to strike a deal on a soft Brexit.

According to the British press, a Brexit accord is “95% done” as negotiations resume Monday. The two sides are still undecided in relation to the fisheries and state aid, which jeopardizes the whole negotiation process. Earlier today, chief EU negotiator Michel Barnier took to Twitter for an update on the Brexit talks saying that negotiations continue online, also adding “Time is short. Fundamental divergences remain, but we are continuing to work hard for a deal.”

Apart from this, Prime Minister Boris Johnson is expected to speak to European Commission President Ursula von der Leyen this week as both sides are hopeful that a deal will be reached. PM Boris Johnson’s interventions in the Brexit negotiations is seen as a sign that the UK could be able to consider a compromise to reach a deal before the time runs out. In this light, the parties have agreed on a new deadline, next Tuesday.

The Sterling Fares Well Amid Vaccine Hopes

How does the Sterling react to current Brexit developments? The UK currency is making strong moves to the upside on Monday as the GBP/USD reached near a 3-month high at 1.3397, a price level not seen since Sep 2. The Cable has been trading in a solid upside momentum for the last two months, posting a 5.70% increase from a low of 1.2674 on Sep 23 to the current market price of 1.3390.

The prospect of a Covid-19 vaccine is also adding fuel to the Great British Pound’s run. The UK may start administering Pfizer’s coronavirus vaccine, starting December 1, ahead of the US. As reported by the British press, Pfizer’s vaccine candidate may receive the needed approval this week.

The GBP/USD is benefitting from the increased optimism that the UK is beginning to reverse the trend in confirmed infections as the country is now under a second lockdown. As virus cases are declining, the British government is set to discuss the easing of restrictions to allow families to gather for Christmas. Prime Minister Boris Johnson, who is still self-isolating, is scheduled to remotely hold a press conference later today in which he is expected to reveal a new tier system within the context of his Covid Winter Plan.

On the economic data front, earlier today the latest PMI data was released, showing the UK economy falls back into contraction as Services PMI for Nov came at 45.8 vs 52.3 expected. Composite PMI posts better than expected data at 47.4 vs 42.5 along with manufacturing PMI, also beating expectations with 55.2 vs 53.3 expected.

European markets assets remain relatively unchanged as benchmark indexes are trading flat to posting modest gains. The DAX is up 0.24%, followed by the French CAC40 up about 0.20%. The FTSE100 shows a minor loss of 0.18%.

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