GBP/USD: Deal Or No Deal? Boxed-In Boris May Unleash A Rally

  • GBP/USD has been marching higher in hopes of a Brexit deal.
  • Coronavirus headlines and several data points compete with EU-UK talks for attention.
  • Late November’s daily chart is painting a bullish picture.
  • The FX Poll is pointing to short-term gains.

Far away, so close? Brexit headlines have continued whipsawing GBP/USD – and so have changing market mood swings. Vaccine news is set to continue competing with Covid statistics once again. The Federal Reserve’s minutes, updated US growth figures and forward-looking UK surveys are eyed.

This week in GBP/USD: Brexit dominates the scene

GBP/USD’s temporary dip in response to a pause in Brexit talks – the result of a team member’s positive COVID-19 test – may sum up the week. Coronavirus and talks about future EU-UK relations have been intertwined, and most falls usually triggered a bounce.

Brexit headlines have often been contradictory. Prime Minister Boris Johnson signaled the UK would prosper without a deal, and EU officials indicated talks could collapse. On the other hand, the British press talked about a French compromise on fisheries – a minuscule industry that politically punches above its weight – and that a deal is imminent.

Markets tended to see the glass as half full, sending sterling higher on positive developments and losing interest in adverse headlines.

After Pfizer caused markets to cheer on the previous Monday, it was Moderna’s turn to inject optimism into markets. The American firm reported 94.5% efficacy in its Covid vaccine candidate and also lower storage temperatures. The market reaction was not as significant, as Moderna had already implied results were imminent.

Immunization optimism continued with Pfizer’s announcement that it would shortly seek regulatory approval for its inoculation and continued with AstraZeneca’s upbeat news. While the British pharmaceutical firm’s statistics were only from its Phase 2 trial, they showed high tolerance and raised hopes that the broader test would also yield upbeat results.

High hopes for an exit from the coronavirus crisis were countered by grim reality. Britain’s death toll from coronavirus topped 50,000, and the infections curve remains stubbornly elevated. Expectations for a rapid tapering of measures on December 2 – when the current nationwide lockdown expires – have diminished. Even if the UK returns to a regional approach, restrictions may remain relatively tight.

America’s covid crisis is worse. Hospitalizations have been hitting new peaks almost daily, and other metrics are going in the wrong direction as well. Several state governors announced measures from mask mandates to school closures, potentially adding to the economic damage caused by consumers shying away from streets. The safe-haven dollar found limited bids in response.

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