Forex Market: GBP/USD heads for best week since early October as Brexit trade negotiations heat up

GBP/USD was trading slightly higher in mid-European session on Friday and was set to register its best weekly performance since the business week ended October 2nd, as negotiators from Britain and the European Union began intense talks aimed to achieve a last-minute Brexit trade agreement.

On Wednesday GBP/USD surged by more than 1.5%, while marking its best single-day performance in seven months after Britain and the EU announced a new phase of intense Brexit talks.

Developments surrounding Brexit negotiations have been the main driver behind the Sterling exchange rate, outweighing monetary policy announcements or macroeconomic reports.

“Anything that brings a deal – any deal – closer to the table is going to see sterling strengthen. Anything that highlights the risk of no-deal is going to see sterling weaken,” John Goldie, a Forex dealer at Argentex, said.

A trade agreement would benefit both sides, but could only happen in case the bloc respects Britain’s sovereignty over fisheries, a key sticking point in talks, according to UK junior finance minister Stephen Barclay.

“I wouldn’t be surprised if we do get more wobbles or a little bit more uncertainty in the coming weeks,” Argentex’s John Goldie said.

“If a deal’s there to be done, we’ll see that in the tail end of November, maybe even very early December, with just enough time to get the legalities sorted out.”

Meanwhile, on the macroeconomic front, a report showed earlier on Friday that UK retail sales had risen at a sharper-than-expected monthly rate in September, 1.5%, which also marked the fifth consecutive month of gains. In annual terms, September retail sales also exceeded a consensus of estimates, surging 4.7%.

A separate report by IHS Markit/CIPS showed business activity in UK manufacturing sector expanded at a slower rate in October compared to the prior two months, as growth in output and new orders slowed and staffing numbers decreased at a sharper pace.

As of 9:56 GMT on Friday GBP/USD was inching up 0.03% to trade at 1.3080, while moving within a daily range of 1.3051-1.3113. The major pair looked set for its third gain in four weeks, being up 1.30%. GBP/USD has risen 1.33% so far in October, following a 3.42% slump in September, its worst performance since July 2019.

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 17.2 basis points (0.172%) as of 8:15 GMT on Friday, down from 18.8 basis points on October 22nd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3100
R1 – 1.3129
R2 – 1.3182
R3 – 1.3211
R4 – 1.3241

S1 – 1.3047
S2 – 1.3018
S3 – 1.2966
S4 – 1.2913