GBP/USD: Brexit Fish Fight May Prove Buying Opportunity, BOE Unlikely To Rein The Bulls

Is 1.36 the next stop for GBP/USD? The trend is undoubted to the upside, yet a short-term correction cannot be ruled out. Brexit continues dominating sterling’s trading, overwhelming other developments such as central bank action on both sides of the pond.

Where do talks stand? EU and UK negotiators remain quiet – a positive sign of progress – and also offer fewer leaks from the talks. The picture that is emerging is of substantial progress – if not an outright agreement – on the thorny Level-Playing Field. A breakthrough became possible after UK Prime Minister Boris Johnson allowed for alignment mechanism with EU rules.

The focus is now on fisheries – both Johnson and European Commission President Ursula von der Leyen have escalated their rhetoric on Wednesday, vowing to defend the rights of fishermen. The minuscule sector is politically sensitive as fish, contrary to regulations are visible, and as fisheries were highlighted in the EU Referendum. France and other European countries have reportedly toughened their stance on the topic as well.

Nevertheless, if there is a will, there is a way. The Brexit transition period expires in two weeks and Christmas is right around the corner. Both sides have the interest to strike a deal – but may put up one last fight for their domestic audiences before reaching an agreement. Such a last-minute row could hit sterling and serve as a buying opportunity. Any headline is set to rock the pound.

Outside the Brexit bubble

The Bank of England is projected to leave its policies unchanged in its last meeting of 2020 after boosting the bond-buying scheme by £150 billion in November. The BOE does not release a quarterly report nor hold a post-event press conference, but will likely commit to doing whatever is necessary to support the economy. As long as it refrains from hinting at setting negative rates, the “Old Lady” is likely to provide a dose of support to sterling.

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