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Brexit negotiations hit the pound

GBP - British Pound

Over the weekend Brexit negotiations have taken a turn for the worse with fishing rights, governance rules, and future dispute resolution all remaining sticking points for a deal to get done before the end of the year. EU chief negotiator, Michel Barnier, is said to be downbeat as to the prospect of an agreement with the ball now in UK prime minister Boris Johnson’s court. Investment bank, JP Morgan, have stated that their predicted percentages for a UK-EU deal have worsened from 20% to 30%, but Irish prime minister, Michael Martin, seems to be less confident saying that he believes the deal was closer to 50-50. The uncertainty of a deal being agreed, so close to the deadline, has knocked the pound this morning.

Sterling had been trading higher against a basket of currencies with the recent vaccine headlines and an improved outlook on Brexit negotiations. Friday, GBPUSD had been trading as high as 1.3540 but this morning the currency pair has fallen below 1.3250. GBPEUR has also fallen, dropping below 1.1000. There is little macro-economic data today, so eyes will remain firmly on Brexit updates for guidance on GBP movement.

Key Movers

The USD is once again being bought as a safe haven currency. The US gained only 245k jobs in November, which was less than half the expected number. Growing virus concerns in the US have not been helped by the lapse of several federal support programs. This may be the catalyst for the new stimulus deal to be agreed sooner rather than later. There are also concerns that the US-China relations will be affected by the recent USD sanctions against 14 Chinese officials. All these points, along with Brexit now hitting further stumbling blocks, has seen investors buy the USD and other safe haven currencies (CHF and JPY).

It seems President Joe Biden has a rocky transition period to have to navigate through prior to his January 20th inauguration. Many had believed a care package would have been agreed prior to now, but as this can keeps getting kicked down the road and global concerns grow elsewhere – the USD is strengthening. In the past 5 days the USD has gained ground on the AUD, which can be a good gauge to know where risk appetite sits with investors.

Expected Ranges

GBP/USD: 1.3210 - 1.3380 ▼

GBP/EUR: 1.0930 - 1.1060 ▼

EUR/USD: 1.2050 - 1.2140 ▼

GBP/AUD: 1.7890 - 1.8080 ▼