GBP/USD climbed to a fresh two-month high in Asia on Monday, as market players cheered Joe Biden’s election victory, supporting risk-sensitive currencies and pushing the US Dollar Index (DXY) down to a 10-week low due to expectations of diminishing trade frictions between the US and China and accommodative monetary policy in support of economy.
The major pair gave back a portion of earlier gains and remained relatively steady in early European trade, as investors turned their attention to the next round of Brexit talks.
Biden on Saturday gained more than 270 electoral college votes, a threshold ensuring election victory, as he claimed the battleground state of Pennsylvania.
Still, however, the final makeup of the US Senate may remain uncertain until runoff votes in Georgia in January.
“The outcome is ideal from a market point of view,” CMC Markets’ chief strategist Michael McCarthy said. “Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”
Meanwhile, key differences in negotiations between the EU and Britain still remain, while both sides are attempting to reach a deal before the status-quo transition period ends on December 31st.
Earlier on Monday the UK said that it was open to a “sensible” compromise on one of the sticking points in talks – fisheries.
Some experts are rather optimistic that an agreement will be reached.
ING Forex strategists wrote in a client note that they “lean in favour of a GBP-positive outcome, although the lack of short-term risk-premia or net-short positioning in GBP both highlight lingering complacency to no-deal risk and a magnified downside risk if negotiations collapse.”
Additionally, Irish foreign minister Simon Coveney said that Joe Biden’s victory in the US presidential election could affect Brexit talks, as the Democrat is “a real friend of Ireland.”
As of 10:25 GMT on Monday GBP/USD was inching down 0.02% to trade at 1.3141, after earlier touching an intraday high of 1.3199, or its strongest level since September 7th (1.3266). The major pair has risen 1.53% so far in November, following another 0.26% gain in October.
In terms of economic calendar, today market players will be paying attention to speeches from Bank of England Governor Andrew Bailey at 10:35 GMT and BoE’s chief economist Andy Haldane at 14:00 GMT for any clues regarding negative interest rates. The central bank announced last Thursday that it would increase the scale of its bond-purchasing program by GBP 150 billion to mitigate the economic impact from virus-related lockdowns and Brexit.
Fed President for Dallas Robert Kaplan is also scheduled to speak at 22:00 GMT.
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 21.4 basis points (0.214%) as of 9:15 GMT on Monday, up from 12.0 basis points on November 6th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.3138
R1 – 1.3183
R2 – 1.3222
R3 – 1.3268
R4 – 1.3313
S1 – 1.3099
S2 – 1.3053
S3 – 1.3014
S4 – 1.2975