Following a 0.7% rebound on Monday, GBP/USD remained mostly steady in mid-European session on Tuesday as investor optimism over the possibility of a post-Brexit trade deal re-emerged.
Yesterday the currency pair surged to 1.3445, rebounding from last Friday’s one-month low of 1.3134, after reports stated EU and UK negotiators had agreed on Sunday to “go the extra mile” to try to secure a deal during the upcoming days. EU’s chief Brexit negotiator Michel Barnier expressed optimism a deal was still possible.
The two sides have a bit more than two weeks of time to secure a deal that covers almost $1 trillion in annual trade before the UK is no longer able to take advantage of zero-tariff zero-quota access to the EU’s single market on December 31st.
“Our view is once again that a deal is firmly more likely than not, with the risks tilted towards full resolution by the end of the week,” Deutsche Bank strategist Shreyas Gopal wrote in an investor note.
“Confirmation of a deal would remove one of the largest lingering risks for the pound, and should allow the market to at a minimum take out the increased negative rates pricing of the last few days,” Gopal added.
He also noted that a potential deal would trigger a GBP/USD rally to the 1.3600 area.
As of 10:18 GMT on Tuesday GBP/USD was inching down 0.01% to trade at 1.3314, while moving within a daily range of 1.3280-1.3348. The major pair has dipped a mere 0.05% so far in December, following a 2.87% advance in November, or its biggest since July.
In terms of economic calendar, today market players will be expecting the monthly data on manufacturing activity in the New York region for December due out at 15:30 GMT as well as the November report on US industrial production due out at 16:15 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 21.3 basis points (0.213%) as of 9:15 GMT on Tuesday, down from 21.9 basis points on December 14th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.3350
R1 – 1.3411
R2 – 1.3506
R3 – 1.3566
R4 – 1.3626
S1 – 1.3255
S2 – 1.3195
S3 – 1.3100
S4 – 1.3005