Forex Market: GBP/USD hits a one-week high on investor optimism a messy Brexit could be avoided

GBP/USD hit a fresh one-week high during late European session on Monday, supported by investor optimism that the UK could strike a post-Brexit trade deal with the EU by next month, or at least avoid a messy departure from the political and economic union.

Both sides need to come to an agreement until the end of December, while a preliminary deadline has been set for October since signing off any deal would require time.

“There’s hope that no matter what they will avoid the extremes and even if there is no deal, they will make sure that we don’t get any disruptions in the market,” Athanasios Vamvakidis, global head of G10 FX strategy at BAML, said.

“Just a couple of weeks ago, everything was falling apart. There was the internal market bill and the chances for a deal had collapsed. And since then it seems that the UK government … have indicated that they will avoid violating the withdrawal agreement so this was one positive,” Vamvakidis added.

At the same time, Bank of England and the European Securities and Markets Authority (ESMA) said earlier on Monday that they had agreed on the information-sharing arrangements that are required for EU banks to keep using London clearing houses from January 2021.

As of 10:52 GMT on Monday GBP/USD was advancing 1.31% to trade at 1.2907, after earlier touching an intraday high of 1.2908, or a level not seen since September 21st (1.2967). The major pair has retreated 3.47% so far in September, following three successive months of gains.

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 19.2 basis points (0.192%) as of 10:15 GMT on Monday, down from 20.4 basis points on September 25th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2744
R1 – 1.2802
R2 – 1.2863
R3 – 1.2920
R4 – 1.2977

S1 – 1.2683
S2 – 1.2626
S3 – 1.2565
S4 – 1.2503