Deal at last
UK and EU negotiators reached an agreement on a trade deal on Christmas Eve triggering rallies in UK equities markets and the Pound. The reaction was undermined by a lack of trading volumes and of course the proximity of Year End and Sterling ebbed over the following days. The treaty needs now to be approved by the UK parliament, which will discuss it on December 30. Yesterday Sterling lost 150 pips against the Dollar on concerns that the UK Services sector isn’t covered in the Brexit Deal in conjunction with a Dollar rebound across the board.
Overnight cable found some support near the 1.3430-25 region and Sterling managed to regain some positive traction and by the market open the pair were closer to the key 1.3500 psychological mark. With safe-haven dollar demand muted and thin year-end trading volumes there is the risk that with little visible action this week any price breakout could well surprise.
On Sunday Donald Trump signed a $2.3 trillion pandemic aid and spending package, restoring unemployment benefits to millions of Americans and averting a partial federal government shutdown that would have started on Tuesday. The relief generated by the long-awaited US stimulus triggered a fresh wave of the global risk-on trade and pushed the US Treasury bond yields higher across the board. This, in turn, was seen as a key factor that helped revive the USD demand (and not for safe-haven reasons).
Short positions (bets on price falling) on the Dollar swelled in the week ended Dec 21 to $26.6 billion, the highest in three months, according to Reuters’ calculations based on data released by the Commodity Futures Trading Commission.
The single currency fell 0.09% against the U.S. Dollar yesterday, to $1.2209 but gained 1% against Sterling to 1.1017. The Euro stands to benefit just as much as Sterling from a Brexit deal and of course Boris Johnson conceded on fishing, giving EU boats uninterrupted access for the next 5 and a half years. Strict lockdown measures in France, Italy, Spain and the Netherlands have also slowed the virus curve and Germany may be improving as well generating positivity for the outlook.