Forex Market: GBP/USD plunges to an over two-week low as Brexit jitters affect investor sentiment

GBP/USD retreated more than 1.2% on Monday, while touching lows unseen since November 19th, as market players became more concerned about the possibility of Britain and the European Union not managing to secure a post-Brexit trade deal as last-minute negotiations resumed.

A senior EU diplomat said that European Union’s chief negotiator Michel Barnier was “rather downbeat” about the prospect of an agreement.

The Sterling registered a sharp drop in early European session on Monday after a report by the Sun newspaper stated British Prime Minister Boris Johnson was ready to pull out of Brexit negotiations “within hours” unless EU leaders change their demands.

“The suggestion that we are “hours” away from pulling out of discussions has had the inevitable impact on the rates but I’d wager “hours” will pass this morning without the fulfilment of the ultimatum,” John Goldie, Forex dealer at Argentex, said.

“No party involved wants to be seen to be the first to concede and, actually, all the recent theatrics are indicative of the fact that the end is in sight and while both sides remain at the table I suspect a deal of sorts remains the clear favourite outcome,” Goldie added.

Meanwhile, the recent US jobs report showed employers in all sectors of the economy, excluding the farming industry, added 245,000 jobs in November, or the smallest rate of increase since May, suggesting a slowdown in jobs market recovery.

“The recent loss of momentum is a concern as it suggests that it will take longer to reverse the negative hit to the U.S. labour market from the COVID shock, given renewed disruption from the third wave,” Lee Hardman, currency analyst at MUFG, was quoted as saying by Reuters.

In light of recent macro data, pressure on both Congress and the Federal Reserve could mount to deliver further stimulus, according to Hardman.

The Federal Reserve is expected to further adjust its quantitative easing when the FOMC holds a policy meeting later in December.

“In the current trading environment, the increasing speculation over looser U.S. fiscal and monetary policies provides support for risk assets and weighs on the U.S. dollar,” MUFG’s Hardman said.

The US Dollar Index was up 0.51% on the day to 91.16, after earlier plunging to lows not seen since April 2018.

As of 10:28 GMT on Monday GBP/USD was retreating 1.17% to trade at 1.3271, after earlier touching an intraday low of 1.3224, or its weakest level since November 19th (1.3196). The major pair has dropped 0.33% so far in December, following a 2.87% advance in November, or its biggest since July.

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 22.8 basis points (0.228%) as of 9:15 GMT on Monday, up from 19.9 basis points on December 4th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3459
R1 – 1.3509
R2 – 1.3589
R3 – 1.3639
R4 – 1.3688

S1 – 1.3379
S2 – 1.3330
S3 – 1.3249
S4 – 1.3169

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