Forex Market: GBP/USD hits a fresh one-month high underpinned by Brexit talk optimism

GBP/USD extended earlier gains and touched a fresh one-month high during late European trade on Tuesday, as the Pound was backed by indications that Britain may be open to a compromise on sticking points, as the next round of negotiations over Brexit kicks off.

The US Dollar remained broadly weaker against major peers, retreating to lows unseen since March 17th against the Euro and to a fresh three-month low against the Canadian Dollar, as investor optimism over global economic recovery persisted regardless of concerns over strained relations between Beijing and Washington.

A report by the Times newspaper earlier on Tuesday stated that the UK might demonstrate willingness to compromise on fisheries and trade rules, in case the EU agrees to distance from its “maximalist” demands over regulatory alignment and fishing access.

A new round of EU-UK negotiations begins today, focusing on fisheries and “a level playing field for open and fair competition”, along with the legal structuring and enforcement of the governance of new agreements.

“Despite what is likely to be a period of high Brexit headline risks for UK assets in the coming weeks and months, a report that the UK may be willing to compromise in upcoming Brexit negotiations – along with broad-based US dollar weakness due to the idiosyncratic risk posed by nationwide U.S. protests – is keeping the pound underpinned against the dollar,” Viraj Patel, FX and global macro strategist at Arkera, said.

“The 100-day moving average for sterling-dollar is likely to provide some resistance as investors will want stronger fundamental conviction around the pound rally – and this may need better UK macro data following the lockdown easing or more concrete evidence of reduced Brexit risks,” Patel said.

As of 11:55 GMT on Tuesday GBP/USD was gaining 0.44% to trade at 1.2543, after earlier touching an intraday high of 1.2576, or a level not seen since May 1st, when the major pair registered a high of 1.2601.

In terms of economic calendar, there are no relevant reports scheduled to be released on Tuesday.

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 18.1 basis points (0.181%) as of 10:15 GMT on Tuesday.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.2441
R1 – 1.2554
R2 – 1.2620
R3 – 1.2733
R4 – 1.2846

S1 – 1.2375
S2 – 1.2262
S3 – 1.2197
S4 – 1.2131