GBP/USD: Dual rate decisions and sets of negotiations are set to rock the pound

A nerve-wracking week concludes with growing fears Brexit talks could collapse. Apart from the all-important deliberations, rate decisions on both sides of the pond are eyed. One thing looks certain – extreme volatility, FXStreet’s Analyst Yohay Elam reports.

Key quotes

“The new Brexit deadline is Sunday night, and the only hard cut-off is December 31, when the transition period expires. In case there is no deal over the weekend, talks will likely break up before informal discussions may lead to fresh deliberations. The Brexit saga lives on, promising a high dose of action.”

“PM Johnson still has another burning issue in his intray – coronavirus. Tightening the screws on several areas where the virus is spreading is likely on the cards. Markets are likely to remain calm while London remains in Tier 2 rather than under the grip of Tier 3.”

“The main event of the week is the BoE’s decision on Thursday. The ‘Old Lady’ will likely attempt to end the year quietly as well. Andrew Bailey, Governor of the Bank of England, announced an expansion of the bond-buying scheme by £150 billion, beating expectations and boosting the pound. […] Any hint that sub-zero borrowing costs are on the agenda would hurt the pound.”

“Time is running out to agree on a relief package before the Christmas break and Georgia’s runoff elections on January 5. Markets will probably ‘buy’ any deal now and hope for another one under the new administration. Even a $500 billion boost is better than nothing, but a stronger reaction is likely if the $908 billion bipartisan agreement receives the green light.

“Another potential green light comes from the FDA, which is set to authorize Moderna’s vaccine after giving the nod to the Pfizer/BioNTech one. Having gold-standard seals for two jabs would undoubtedly cheer markets.”

“Recent comments from Fed officials downplayed the need for immediate measures. The bank will likely wait and only commit to additional action if appropriate. That could send the dollar higher.”