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Forex Market: GBP/USD advances with other risk assets, hits a six-week high on EU deal, vaccine prospects

GBP/USD extended gains from the prior two trading days and touched highs not seen in nearly six weeks during early European trade on Tuesday, as the announcement of a “historic” EU deal on recovery fund and positive news regarding COVID-19 vaccine trials bolstered risk-sensitive currencies such as the Pound.

European Union leaders finally reached an agreement on a EUR 750 billion stimulus plan for their coronavirus-ravaged economies after a summit that lasted almost 100 hours.

Global risk sentiment was additionally supported by news that a coronavirus vaccine, being developed by AstraZeneca and Oxford University, triggered an immune response in all study participants who had received two doses.

Two more vaccine candidates are currently under development – one by BioNTech in cooperation with Pfizer and another by CanSino Biologics in cooperation with China’s military research unit.

“Generally, it’s more about improvement in general risk sentiment. When you have risk on in equities, the pound generally benefits,” MUFG strategist Lee Hardman, said.

Still, however, because of the state of UK’s economy and Brexit risks, the Sterling would “have to fight against strong headwinds”, according to Commerzbank’s team of analysts.

The pair’s advance on Monday, its best daily performance since June 30th, was driven mostly by market sentiment amid lack of specific progress on Brexit negotiations.

As of 11:36 GMT on Tuesday GBP/USD was edging up 0.25% to trade at 1.2693, after touching an intraday high of 1.2716, or a level not seen since June 11th (1.2755). The major pair has risen 1.08% so far this week, following a 0.43% drop in the preceding week.

In terms of economic calendar, no relevant macroeconomic reports that may affect GBP/USD valuation are scheduled to be released on Tuesday.

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 25.3 basis points (0.253%) as of 10:15 GMT on Tuesday, up from 25.0 basis points on July 20th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2615
R1 – 1.2712
R2 – 1.2762
R3 – 1.2859
R4 – 1.2956

S1 – 1.2565
S2 – 1.2468
S3 – 1.2418
S4 – 1.2368

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