GBP/USD to struggle to break above 1.3500 even if Brexit deal is agreed – MUFG

FXStreet Team FXStreet

The pound has been one of the worst-performing G10 currencies over the past week although it has still advanced by around 1.4% against the US dollar. Broad-based USD weakness has helped to lift cable back above the 1.3000-level but it remains some distance below the high from the start of September at just below 1.3500. The prospect of a trade deal remains a positive potential catalyst for the GBP but doubts remain over the sustainability of any gains given weak UK fundamentals, per MUFG Bank.

Key quotes

“There is still a lack of progress in Brexit trade talks. EU Chief Brexit negotiator Michel Barnier has warned that ‘serious divergences’ remain over fishing and competition rules. It has dampened expectations for a trade agreement early this month. If Joe Biden becomes President, it could make a WTO-type Brexit less attractive to the UK government. Joe Biden has been a longstanding supporter of European integration and is committed to protecting the Good Friday Agreement. It could complicate fast-tracking a UK-US trade deal compared to under a second term for President Trump. If Joe Biden is confirmed as the new President, it could increase pressure on the UK to finalise a trade with the EU. That prospect is likely helping to dampen downside risks for the GBP.”

“The government has placed England back into a national lockdown until at least the 2nd December although it could be extended beyond. It has already prompted the BoE to forecast a renewed GDP contraction of 2% in Q4 and deeper contraction of -11% for 2020 as a whole. In response, the BoE and government have implemented further ‘co-ordinated’ stimulus. The BoE has significantly expanded QE by GBP150 B and the government has extended the jobs furlough scheme until the end of March. At the current juncture, market participants don’t appear overly concerned by downside risks from monetary financing fears judging by the relative stability of the GBP. The BoE is helping the government to borrow at record low yields.”

Author

FXStreet Team

FXStreet

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