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GBP/USD Eyes Upwards move with Brexit Negotiations and Weak Dollar

Negotiators in Britain and Europe were unable to clinch a deal in talks on Friday. The GBP/USD currency pair may surge if the trade deal shows a positive move.

The deadline for a deal nears, but negotiations continue to drag, though talks have reached a critical point. The Pound and the Euro may surge if there is positive news on the trade deal this week, as the deadline draws closer.

Prime Minister Boris Johnson will hold direct talks with EU Chef Ursula von der Leyen. Chief negotiators of both countries, Michel Barnier and David Frost have held talks for many weeks without taking a break, but to no avail. The leaders will now continue talks to find a solution to remove contentious issues.

GBP/USD

British Pound touches Two-Year High against the US Dollar

The Sterling breaks past strong resistance at 1.3500 on Friday.

The GBP/USD currency pair broke past the 2020 high at 1.3480 reached in September. The Sterling, however, weakened to 1.3437 at close on Friday, failing to continue the upward momentum. The 1.3500 level provides a strong resistance to the Sterling against the Dollar. However, the British Pound made a two-week high before falling lower. It remains to be seen if the Sterling can breach the stiff resistance at this level.

Related:  GBP rallies following Manufacturing PMI, US unemployment numbers ensure FED hike is likely

GBP/USD At Two-Year High

The Sterling has been seesawing for many days on speculation about the trade deal negotiations. A turbulent Brexit without a proper deal may disturb the currency further, while any positive news will be received with an upmove. Despite hectic talks, Brexit headlines continue to extend, without a conclusive agreement.

The Pfizer/BioNTech vaccine has got the nod from regulators in the United Kingdom, the first country to approve the Covid-19 vaccine. After the nationwide lockdown, Prime Minister Boris Johnson has passed localized restrictions in the country.

GDP for October is expected on Thursday. The second-quarter data was in the negative, while the third quarter was better. A rebound in the economic calendar is expected in the days to come. Industrial Production, Manufacturing Production for October, and the Year-on-year data on Manufacturing Production on Thursday will indicate the economic situation in these areas in the days to come.

Contentious Issues Affecting Brexit Deal

Talks have been continuing for eight months between the US and EU regions. The chief sticking points that prevent talks are access to the fishing area, dispute resolution, and fair trade.

Cabinet minister Michel Gove who is responsible for the deal, says that there are chances for a “no-deal” scenario.
In case a deal does not happen, it would disrupt financial markets and disturb supply chains between Europe and the UK and the world over. With the economies disturbed by Covid-19 infections, further problems may arise if trade problems occur.

Related:  NZD rockets following rate cut, RICS adds further gloom to the UK and USD data brings into question Interest rate rise again.

US Dollar Index

US Dollar Hits Fresh Two-Year Lows

US Dollar drops almost 1.71% last week, as the greenback breaks below key support levels. The US Dollar Index closed at 90.70 on Friday, 4 December, at levels last seen in April 2018. The USD Index grinds lower to reach new lows this week.

News on Covid vaccine drives the US equities to all-time highs. The much-awaited stimulus program has not been announced as yet.

At the FOMC meeting next week on 15 December, the Fed may keep interest rates lower to improve consumer borrowing and rescue the weak job market.

Leaders View on the Brexit Issue

France Minister Clement Beaune says, “We have a right to oppose the deal if it is not a good one. We are ready to wield the veto”. German Spokesperson says that Germany is ready for an agreement with the United Kingdom, but not at any cost.

UK Chief negotiator David Frost and EU’s Barnier say that negotiations have paused, as there are big obstacles that block the deal from happening. There are significant divergences on three key issues such as fisheries, governance, and level playing field, say the two chief negotiators.

Prime Minister Boris Johnson has opponents within his party, who continue to apply pressure on him to draw a deal.

A leading official from the United Kingdom says that chances for an agreement are receding as new issues are brought to the table by EU negotiators.

Related:  UK Services PMI boosts Sterling but future caution is aired

Neighbouring countries Belgium, Spain, Denmark, and the Netherlands fear that the European Commission may agree to a deal to protect the interests of the European Union.

Experts feel that both countries have to compromise. Leaders should be willing to give in on certain areas they say. Both the UK and the EU have to deal with harsh trading conditions if a trade deal does not happen by the end of December.

EUR/USD

EUR/USD Currency Pair above Psychological Level

The EUR/USD currency pair closed just above the 1.200 level on Friday, 4 December. The euro against the US dollar has reached two-month highs, moving to 1.2178 and later closing at 1.2120 for the week.

The European Central Bank will announce its interest policy on Thursday.  However, the ECB does not have much in its stimulus kitty bag and may not deliver much.

 

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