GBP/USD slid from one-month highs, while snapping a five-day streak of gains on Thursday, as the US Dollar regained strength and concerns that Britain may leave the European Union with no trade deal at the end of December still lingered.
British and EU negotiators began the final round of trade talks prior to June 30th, which is the legal deadline for Britain to demand an extension to the current transition period. However, little progress has so far been made.
The Scottish Government said yesterday that an extension of the transition period to the end of 2022 would add between GBP 1.1 billion and GBP 1.8 billion to Scotland’s economy and that a shift to a new regulatory regime in times like the present macroeconomic situation would have an even more severe impact on businesses and consumers.
In response, a spokesperson for Boris Johnson’s administration said that regardless of the outcome of negotiations, “we will be leaving the single market and customs union at the end of the year. Businesses therefore need to prepare for life after 31 December, and many have done so already.”
“My sense is that the market is selling sterling again and this will continue this month on fear that we might not get a deal or an extension, so there are some preparations for a worst-case scenario — Brexit without a deal, which is a possibility,” Neil Jones, head of European hedge fund sales at Mizuho, said. According to Jones, the current Sterling exchange rate does not fully reflect a no-deal Brexit.
On the other hand, there are also opinions among market analysts that the transition period may be extended beyond December, since the coronavirus pandemic slowed down EU-UK negotiations. According to Societe Generale, there is a 63% possibility of a transition period extension, while the possibility of a trade deal is seen at 83%.
As of 11:44 GMT on Thursday GBP/USD was retreating 0.35% to trade at 1.2532, after touching an intraday low of 1.2501 during early European session, or a level not seen since June 2nd (1.2479).
In terms of economic calendar, today’s focus will be on US trade balance report, scheduled at 12:30 GMT. The US trade deficit probably widened to USD 49.0 billion in April, according to market expectations, from a deficit figure of USD 44.4 billion in the prior month. March exports and imports shrank to their lowest level since November 2016, as many businesses were forced to operate at limited capacity or to discontinue operations completely due to the coronavirus pandemic.
Also at 12:30 GMT the US Labor Department will report on jobless claims. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended May 29th, probably eased to 1,800,000, according to expectations, from 2,123,000 in the preceding week. The latter has been the lowest number of claims since mid-March.
Bond Yield Spread
The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 20.3 basis points (0.203%) as of 10:15 GMT on Thursday, up from 19.1 basis points on June 3rd.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.2579
R1 – 1.2612
R2 – 1.2649
R3 – 1.2682
R4 – 1.2715
S1 – 1.2543
S2 – 1.2509
S3 – 1.2473
S4 – 1.2437