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Sterling Resilient As Market Still Expecting Brexit Deal

Sterling Resilient As Market Still Expecting Brexit Deal


Brexit-related headlines whipped up volatility and the Pound had a bumpy ride yesterday, implied volatilities hit 8-month highs and market volumes also remained high. Sterling drifted lower following negative rhetoric from Boris Johnson. Just after midday trading surged as the UK and EU secured an agreement on implementing the Withdrawal Agreement, including the Northern Ireland protocol and resolving the Irish border issue. In response, the UK confirmed that the contentious clauses in the Internal Market Bill would be taken out. Sterling rallied, but failed to hold 1.3400 against the Dollar.

Before the European close Michel Barnier stated that the chances of a deal were slim and that no-deal was now more likely. The Pound dropped again, although there will be speculation that contingency measures will be implemented to alleviate disruption. Sterling gained some support from medical reports that the Oxford/Astra Zeneca vaccine is safe and effective. 

After the European close, news emerged that Boris would dine with EU Commission President von der Leyen on Wednesday evening. Sterling has edged higher this morning amid firm global risk conditions with markets braced for intense volatility later, opening at 1.3400 against the Dollar with the Euro at 1.1025.



Against a basket of currencies, the dollar was 0.1% lower at 90.816, less than half a percent above a two-and-a-half-year trough it hit on Friday.

It slipped about 0.2% against the euro to $1.2126 and 0.3% and is tracking toward an annual loss of more than 7.5% against the common currency, its largest since 2017, as investors figure on low rates keeping it under pressure for a while yet.

The dollar gained some protection from a slightly more cautious tone surrounding risk appetite, but was hampered by expectations that negative real interest rates would be sustained next year as the Federal Reserve maintains a very expansionary policy.



The German ZEW economic sentiment index strengthened to 55.0 for November from 39.0 the previous month and above consensus forecasts of 45.5. The current conditions index edged lower to -66.5 from -64.3 previously whilst the Eurozone index strengthened to 54.4 from 32.8 previously and well above market consensus reinforcing expectations that there would be a strong recovery if vaccine treatments proved effective. There are still however, reservations over the short-term outlook, especially with the risk of further restrictions in Germany.

With the Euro edging higher after the German data, a sustained push in upward momentum faded as caution ahead of Thursday’s ECB policy meeting took an underlying tone. Speculation that the central bank would look to be more aggressive in boosting monetary policy thus leading to a stronger attack against Euro strength. 

As of writing, the Euro currently trades over the 1.2125 against its US counterpart.

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