GBP/USD extended gains from last week and touched highs not seen since May 2018 on Monday, mostly due to dollar weakness as global risk sentiment remained buoyant.
The US Dollar Index registered its first annual drop since 2017 in 2020 and was last down 0.56% on the day to 89.43.
The Pound has also gained ground after a last-minute Brexit trade agreement between the UK and the EU on December 24th.
Regardless of that the agreement set rules for fishing and agriculture and did not encompass the UK financial industry, there was certain relief in the markets as UK investors will be able to use platforms in the European Union for swaps trading until March 2021.
Ulrich Leuchtmann, head of FX and commodity research at Commerzbank, viewed the Pound’s recovery following the Brexit trade agreement as “disappointingly limited.”
He also warned that for “market participants with a long-term outlook the concern that Brexit might constitute the beginning of renewed economic decline in the UK is more likely to dominate.”
Market focus will now set on a runoff election in the US state of Georgia tomorrow, which is to determine control of the Senate.
“A Democrat win is likely to see a sharp correction higher by the US Dollar, exacerbated by the world being universally short the greenback,” Jeffrey Halley, market analyst at OANDA, said in an investor note.
“Investors should probably wait for the election dust to settle before committing heavily to new dollar short positions.”
As of 10:12 GMT on Monday GBP/USD was edging up 0.18% to trade at 1.3681, after earlier touching an intraday high of 1.3703, or its strongest level since May 1st 2018 (1.3773). The major pair advanced for a third straight month in December, by 2.54%.
In terms of economic calendar, today market players will be paying attention to the final data on US manufacturing sector activity for December by Markit Economics due out at 16:45 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 30.7 basis points (0.307%) as of 9:15 GMT on Monday, up from 29.1 basis points on December 31st.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 1.3649
R1 – 1.3694
R2 – 1.3731
R3 – 1.3776
R4 – 1.3821
S1 – 1.3611
S2 – 1.3567
S3 – 1.3529
S4 – 1.3492