GBP/USD consolidates below the opening surge towards 1.3000
|- GBP/USD is shying away for the opening highs for the week.
- Brexit risks leave the pound higher sensitive to headlines.
- BoE comments are mixed in regards to rate expectations.
GBP/USD is currently trading at 1.2844 and between a range of 1.2751 and 1.2929, up 0.81% at the time of writing having given back ground from the start of the week's highs.
Cable got off on the front foot at the start of Asia in the week's open following mixed weekend news pertaining to Brexit and negative interest rates. However, optimism prevailed.
The hopes that Britain could secure a Brexit trade deal with the European Union by October or at least avoid a cliff-edge exit from the bloc was enough to fuel a bid against what is potentially an overcooked build-up of dollar longs, at least in the spot market.
The pound's gains were in part fuelled by an EU diplomat saying last week that "the mood music was a bit better" after Britain's Michael Gove expressed confidence about securing a trade deal.
"If discussions this week lead to a breakthrough in fisheries and a level playing field then we could hopefully land an agreement by Oct. 15," Kenneth Broux, head of corporate FX at Societe Generale said.
BoE negative rates on the cards?
Conversely, however, the Bank of England's policymaker Silvana Tenreyro said on Saturday that they have been discussing how effective negative interest rates might be in the economic downturn and "the evidence has been encouraging."
Reuters reported that Tenreyro also told the Sunday Telegraph that any V-shaped recovery would be interrupted by local outbreaks of the novel coronavirus that weigh on the economy and the fact that there is a very weak global outlook.
We have been discussing our toolkit in recent months, including how effective negative rates might be in the current context...The evidence has been encouraging.
The headlines were a thorn in the side for sterling bulls, but later in the opening sessions for the week, the Bank of England's Deputy Governor, Dave Ramsden's, said that he thought the floor for the central bank's key interest rate was 0.1%. His comments will allow the pound some breathing room.
What really matters more for GBP this week is the idiosyncratic driver of the UK-EU trade negotiations outlook.
The easing in rhetoric from both sides gives the pound a boost as fas a sentiment goes, but there is still a 50:50 chance of deal vs no deal, which will leave the pound vulnerable and highly sensitive to headlines one way or the other.
For the domestic data points, taking a back seat to Brexit noise, we have with the main focus being on September PMI Manufacturing,(Thursday).
GBP/USD levels
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