GBP/USD: Brexit countdown bangs loud with room for sterling gains

GBP/USD has hit new highs as optimism about an upcoming vaccine in the UK and a smooth US transition outweighed Brexit uncertainty and upbeat US data. Brexit, Powell and Nonfarm Payrolls promise a hectic start to December, Yohay Elam, an Analyst at FXStreet, reports.

Key quotes

“Deal or no deal? The eternal question may be finally answered as the page turns to December. Markets are not fully pricing a deal, leaving sterling room to move higher. However, the risk is asymmetric, with an unexpected collapse in negotiations probably triggering a massive sell-off. A meeting between PM Johnson and European Commission President Ursula von der Leyen could seal an accord, and even setting such a summit would probably boost the pound.” 

“Health Secretary Matt Hancock mentioned December 1 as the potential beginning of a wide vaccination campaign. While that goal will likely be missed, regulatory approval of any immunization scheme would likely support sterling. COVID-19 statistics remain of high interest, especially those in London, one of the world's financial capitals. Restrictions in the metropolis have an outsized impact on the pound.”

“How high will US covid statistics go? Investors will likely take note if average daily deaths surpass the previous peak or if hospitalizations top 100,000. President-elect Biden will likely address the topic and any hint of a federal action to curb the spread could hurt markets and boost the safe-haven dollar.” 

“On the vaccine front, there is a chance that the Food and Drugs Administration approves the Pfizer/BioNTech immunization for emergency use. While such a move is expected, it would likely provide a shot in the arm to markets and weigh on the safe-haven dollar.” 

“Jerome Powell, Chairman of the Federal Reserve, will testify on Capitol Hill on Tuesday. Markets will try to assess if the Fed is on course to expand its bond-buying program in December or remain on the sidelines for longer. The dollar could drop if he hints at an imminent move and rises if Powell is reluctant to act.”

“Friday's Nonfarm Payrolls figures for November serve as a test to the recovery. Is it slowing down amid the increase in the virus, or does the US economy still have momentum? Expectations stand at 520,000 – which is slower than October's rise of 638,000 but well above pre-pandemic averages.”