- GBP / USD is in full swing as positive Brexit vibrations keep hope.
- Bulls profiting from the weakening outlook for the dollar.
GBP / USD is currently trading at 1.2534 and has rebounded 0.4% on the day from a low of 1.2478 to a high of 1.2575. The US dollar is still under pressure and today posted a new low of 97.43 in DXY. While the dollar is certainly a major factor, the fact that the pound has also rebounded against other currencies shows renewed optimism in Brexit developments and a re-emergence of bulls.
The Times recently reported that, according to sources in Brussels, the United Kingdom should signal compromises on fishing and “fair” trade rules if the EU renounces its demands for regulatory alignment and access to fishing.
If the bare bones of a trade deal can be put in place this week, that would bring significant relief to the pound. That said, any rally could turn out to be short-lived if a trade deal is seen to lack elements of a “good deal” for the UK,
explain analysts at Rabobank.
So it looks like we’re back to the volatility of the GBP as the headlines move from pessimism to optimism. However, as long as positive progress in Brexit continues, as analysts suggest, it could be blue skies for the pound. According to the Times, analysts have noted that “Frost is keen to counter the perception that negotiations are deadlocked and that a free trade agreement with the EU cannot be concluded. The newspaper also reports that Barnier told European ambassadors that he believed the British government wanted progress in the coming weeks.
We are awaiting a statement at the end of this week for short term guidance, but there is a long way to go before the market in terms of the end of June deadline for an extension of the transition phase. PM Johnson & co was very clear from the start that there was no intention of asking for a new deadline. the freeze reiterated recently, in fact, and said it would not accept an EU request.
Negative rates are a real threat
In the meantime, it should be noted that the short net position on the GBP has returned to December levels, as Brexit is not the only negative market input that worries traders. There has been much criticism of the way the British government has handled the coronavirus crisis. In addition, negative rates pose a real threat to the sterling markets.
BoE Governor Bailey and other MPC comments that negative rates have not been ruled out have also been negative in pounds, although this is unlikely to be an imminent political option,
Rabobank analysts argued.