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  • GBP/USD was the best performing USD major on Monday, with the EU and UK seemingly moving ever closer to a deal.
  • The pair nearly surpassed 1.3400 before slipping below 1.3300 on post-data USD strength, although has now recovered back to 1.3320.

GBP/USD continues to look perky compared to the majority of its USD major counterparts; the pair hit its highest levels since early September on Monday at close to 1.3400 and, although slipping back below 1.3300 amid a bout of broad USD strength midway through the US session, has recovered back above 1.3300 going into Tuesday’s Asia session.

Perky GBP waiting for confirmation of Brexit deal for next leg higher

Reports suggest a Brexit deal is very close; over the weekend Sky News suggested that the two sides are 95% in agreement, with just outstanding issues of fisheries, state aid and level playing field outstanding. Solving these issues will of course require tough compromises that can only be made at the top of government, hence why market sentiment was also boosted by reports that UK PM Boris Johnson was gearing up to negotiate directly with EU leaders in order to get a deal over the line, something which EU sources confirmed on Monday. Johnson is expected to speak to European Commission President von der Leyen sometime this week, and markets are hoping this could be the big moment when a deal is finally struck.

Reports this evening suggested that while British and EU negotiators reportedly on the cusp of a trade deal, Brussels is reportedly considering asking for a 10 to 15-year review clause in the trade deal and fishing agreement. That might be a compromise worth agreeing to for the UK if it means they can extract their own concessions on key issues from the EU. Time will tell if this is the case.

But the base case, as far as markets are concerned is that a deal will be reached, partly explaining how GBP has been able to rally more than 600 pips from September lows vs USD and nearly 400 pips vs EUR.

But nothing is guaranteed. Hence when white smoke does start to rise from negotiations, a further leg higher for GBP vs the likes of USD and EUR is likely. Then focus can return to the more immediate challenges to the UK economy such as the fallout from the Covid-19 pandemic and how quickly it is able to recover in 2021.

GBP/USD Key levels

 

 

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