The Pound has bounced back overnight from Friday’s lows after Britain and the European Union agreed yesterday to “go the extra mile” and extend Brexit talks.
Boris Johnson and the European Commission President, Ursula von der Leyen, had originally set yesterday as the deadline for Brexit negotiators to break the impasse in their discussions. Whilst the two sides remain deadlocked over key sticking points, neither party wants to walk away yet and this has boosted optimism around the chances of a deal. Although another self-imposed deadline has been extended without resolution, both sides are under pressure to reach a deal by 31st December and The Times reported today that progress has been made on the level playing field topic.
In other news, Covid-19 continues to spread heavily in the US with new average cases, deaths and hospitalisations hitting new records. The USA approved the Pfizer vaccine on Friday and their vaccination programme will start today which should help support market risk sentiment. Covid cases in the UK are looking more stable, however there’s concern of a large rise in cases in London which may need to enter Tier 3 restrictions this week.
As a result, the GBP/USD has bounced back over 2.5 cents from Friday’s low and trades back to the levels we saw last Wednesday. The GBP/EUR has recovered over 1.5% from Friday’s low but remains relatively subdued due to ongoing Euro strength, with the EUR/USD remaining well above 1.21.
Markets will continue to closely track Brexit developments this week which should keep the Pound volatile. Later in the week, final interest rate-setting meetings of the year will take place for the US Federal Reserve and Bank of England, but no major changes are expected to be made at this stage.