GBP/USD nudging back towards daily lows as Brexit talks take a break

GBP/USD has sunk back towards lows of the day in the 1.3420s as Brexit deal hopes again wane and USD picks up amid pre-weekend profit-taking. The pair now trades just under 20 pips lower on the day or down slightly more than 0.1%.

Brexit hopes fade

EU Brexit Negotiator Michel Barnier issued a statement on Twitter saying that after a week of intense negotiations in London, both sides agreed that the conditions for a deal had not been met, as significant differences on the issues of level playing field, governance and fisheries persist. Barnier added that the two sides accepted to pause talks to allow time for the briefing of principals on the state of negotiations. EU Commission President von der Leyen and UK PM Johnson will discuss that state of play on Saturday, Barnier added.

Whilst markets had been warned by a number of journalists that no deal would be reached on Friday, news that talks had been paused may have triggered some concerns, hence why GBP has slipped further down the G10 performance ranking as market participants head for the door.

However, hopes for a breakthrough this weekend will continue to linger ahead of tomorrow’s conversation between Johnson and von der Leyen. If they do find a compromise and a deal does get signed off this weekend, then markets will likely react with jubilation at the Monday Asia open. However, the French in particular have been making it clear that they do not want any more concessions from the EU side and will veto any deal they do not like.

A deal that is palatable to both the UK and (most of) EU may not be good enough for the French. Overcoming French resistance to aspects of any agreement they don’t like is thus a significant hurdle that ought to tame GBP upside when/if a deal is announced.

USD nurses this week’s losses

Contributing to GBP/USD’s downside in recent trade has been a broad pick up in USD, with the Dollar Index (DXY) recovering back into positive territory on the day, though still remaining subdued well below the 91.00 level.

USD has been slammed this week on the usual dollar bearish cocktail of factors including US fiscal stimulus and vaccine hopes, dovish Fed expectations and an improved 2021 growth outlook. Thus, perhaps it is only right that the buck sees some respite, amid potential profit-taking.

Many analysts still see risks for USD as being tilted towards further downside; Friday’s jobs report makes further Fed action (dovish and USD negative) as well as more fiscal stimulus (risk on so USD negative) more likely.

GBP/USD finds new range

Primarily as a result of an extension of USD weakness, GBP/USD has broken out of its former 1.3300ish-1.3400ish range to find a new range in the 1.3400s to lower 1.3500s at the end of the week. The pair is likely to remain choppy and difficult to trade, but to the downside, the 1.3400 level ought to offer decent support and to the upside, this week’s 1.3539 high is likely to offer some resistance.