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  • GBP/JPY gaps higher as the EU and UK go extra mile to reach a Brexit trade deal. 
  • Gains could be short-lived, analyst told Reuters. 
Sterling has begun the week on a positive note in hopes for a trade deal between the UK and European Union (EU), pushing the GBP/JPY pair higher by 0.84% to 138.63. 
The pound has picked up a bid in response to the EU and UK’s decision to go an extra mile (beyond the Sunday deadline) in securing a last-minute “eleventh-hour” compromise to have arrangements in place before the Brexit transition period ends on Dec. 31. 
“This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided,” Junichi Ishikawa, senior foreign exchange strategist at IG Securities told Reuters. “A partial deal with an agreement to negotiate further next year might save the pound, but anything less would lead to renewed selling.”
According to some analysts, Sterling’s strength could be short-lived because the two sides have repeatedly struggled to iron out differences, and there is still a risk that trade and business will be thrown into chaos without an agreement, as noted by Reuters. 
The GBP/JPY pair has already pulled back from the session high of 138.94 to 138.63 and may drop further if the Brexit optimism fades. At press time, the futures tied to the S&P 500 are flashing green, with investors cheering progress on coronavirus vaccines and expectations of additional US fiscal stimulus. 

Technical levels