Forex Market: GBP/USD holds gains on better Brexit deal prospects, increased bets on Biden election win

GBP/USD was holding gains from the previous two trading days on Friday, drawing support from better prospects of a Brexit deal, while investor bets that Joe Biden would win the US presidential election and his administration would offer fiscal aid afterwards rose, weighing on safe haven US Dollar.

Some major banks on Wall Street project a fiscal aid deal of some sort, no matter who wins the election. In case of a Biden win and if Democrats become dominant once again in the Senate, there could be a larger stimulus deal, according to forecasts.

Recent Reuters/IPSOS polling showed that Biden had a narrow lead ahead of Trump in several states – Wisconsin, Pennsylvania, Michigan, Florida and Arizona, which are considered essential for the election’s outcome.

“There’s been a noticeable decline in implied volatility around the election date, which suggests that the market is getting more confident of the outcome and that it’s satisfied with the likely result,” Marshall Gittler, head of investment research at BDSwiss Group, said.

Meanwhile, investor optimism that a no-deal Brexit could be avoided has risen over the past several days, just prior to the European Council meeting on October 15th-16th.

Yet, there have been contravening headlines in regard to how much progress both sides have achieved in their negotiations so far.

“The last two weeks have seen some brutal whipsawed price action in Sterling,” Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets, said.

“There is going to be that ongoing susceptibility to Brexit headlines but the mood music still seems to be reasonably positive,” he said.

Stretch also expects a re-test of the 1.3000 mark for GBP/USD, in case risk sentiment continues to build up.

As of 9:31 GMT on Friday GBP/USD was inching up 0.03% to trade at 1.2936, after earlier touching an intraday high of 1.2973, or a level not seen since October 6th (1.3007). The pair looked set for a second straight week of advance, being up 0.10%. GBP/USD has risen 0.16% so far in October, following a 3.42% slump in September, its worst performance since July 2019.

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 18.9 basis points (0.189%) as of 8:15 GMT on Friday, up from 17.7 basis points on October 8th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2931
R1 – 1.2972
R2 – 1.3010
R3 – 1.3051
R4 – 1.3091

S1 – 1.2893
S2 – 1.2852
S3 – 1.2814
S4 – 1.2775

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