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

Covid mortalities in the US, the EU and the UK

Source: FT

Economic data was mostly positive for pound/dollar. UK Retail Sales jumped by 1.2% in October, beating estimates. Britain’s headline Consumer Price Index exceeded expectations with 0.7% yearly in October, lessening the case for additional stimulus from the Bank of England.

US Retail Sales disappointed with a meager rise of 0.3% in October, and Unemployment Claims also missed expectations by increasing to 742,000 in the week ending on November 13. On the other hand, housing sector statistics remain robust.

UK events: Mostly Brexit and the virus again

Brexit: 

Mid-November has come and gone – but so have many other deadlines in the EU. While there is still time until the end of the transition period on December 31, there is an urge on both sides to “get Brexit done,” as Johnson said. Reports on “bending red lines” may turn into black ink on a deal.

How would sterling react? While the talks’ collapse would undoubtedly send sterling down, will investors “buy the rumor, sell the fact” in response to a deal? The recent market sensitivity shows that an agreement is far from being priced in, leaving room for the pound to rally.

Another date next month is also on traders’ minds – December 2, when the current shuttering expires. The PM is likely to postpone any decision to the last minute, and coronavirus statistics could guide markets ahead of the next moves. If infections begin declining more substantially, there is room for easing and a rise in the pound. If Britain continues struggling to contain the disease, the pound could suffer.

AstraZeneca might publish its Phase 3 trial results late in the week, but there are higher chances for the data to come out only later on. While the UK’s struggle against the virus is arguably having modest success, it is well-positioned when it comes to an exit strategy. Apart from having a homegrown immunization scheme, the government signed agreements with five other pharmaceutical companies. Once vaccines are authorized, Britain could quickly emerge from the crisis.

See Three reasons to expect a sustained Santa rally for sterling.

Markit’s preliminary Purchasing Managers’ Indexes for November will likely show a decrease in expectations. The large services sector’s PMI stood at 51.4 points in October, pointing to modest growth. A decline below 50 would represent a return to economic contraction and fears of a double-dip recession.

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