Forex Market: GBP/USD maintains ground above 1.3300 as a “crucial” week for a breakthrough in post-Brexit trade talks begins

Having climbed to highs not seen since early September last week, GBP/USD maintained ground above the 1.3300 mark in mid-European session on Monday, as market optimism that a post-Brexit trade deal between the UK and the EU may be secured continued to persist.

According to Britain’s Environment Secretary George Eustice, this week is “crucial” for both sides to achieve a breakthrough in negotiations as time is running short.

Both the EU and the UK are seeking compromises from the other on matters such as fishing, state aid as well as how any future disputes will be resolved, before reaching an agreement.

On the other hand, there are also opinions that the Sterling may not appreciate much further in case a deal is reached.

“The UK is likely to face adjustment pressures from the twin factors of COVID-19 and Brexit with or without a limited FTA (Free Trade Agreement) in place from January 1, 2021, and there is scope for more friction in the bilateral UK/EU relationship going forward,” Stephen Gallo, European Head of FX Strategy at BMO Capital Markets, was quoted as saying by Reuters.

“Regardless, the UK’s twin fiscal and current-account deficits will probably curb GBP appreciation for the time being, and their persistence could pose medium-term inflation risks to the UK economy,” Gallo said, while projecting a GBP/USD exchange rate of 1.3400 in three months.

As of 10:58 GMT on Monday GBP/USD was edging up 0.17% to trade at 1.3327, while moving within a daily range of 1.3305-1.3358. The major pair looked set to register its best monthly performance since July, while being up 2.96% so far in November.

In terms of economic calendar, today market players will be paying attention to the monthly data on manufacturing conditions in the Chicago area for November at 14:45 GMT as well as to the October report on US pending home sales due out at 15:00 GMT.

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 20.2 basis points (0.202%) as of 9:15 GMT on Monday, down from 20.7 basis points on November 27th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3324
R1 – 1.3363
R2 – 1.3420
R3 – 1.3459
R4 – 1.3498

S1 – 1.3266
S2 – 1.3227
S3 – 1.3170
S4 – 1.3112