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Pound to Dollar Rates Soar 1.4% as UK-EU Brexit Talks Progress Deliver Sterling Gains

December 14, 2020 - Written by John Cameron

The Pound to US Dollar (GBP/USD) exchange rate soared by 1.4% today as hopes of a post-Brexit trade deal escalate as UK-EU trade talks continue. The pairing is currently fluctuating around $1.342.

Michel Barnier, the EU’s Chief Negotiator, said that a trade agreement between the two sides was ‘still possible’.

However, Barnier also added that there was ‘some progress’ in negotiations but there remained ‘substantial gaps’ that ‘need to be bridged’.

Mohit Kumar, the managing director of interest rate strategy at Jeffries, said the odds were now ‘50/50’ despite ‘significant differences’ in demands from the UK and EU.

Kumar added:

‘Our base case is that we will get some version of a fudge deal with a transition period, suggesting that negotiations could continue in 2021 as well. In terms of deadline, the realistic deadline for any agreement would be the 31st December.’

As a result, GBP investors are now more hopeful that the two sides can secure a post-Brexit trade deal beginning from January 1st, 2021.

Added to this, UK market confidence has soared over the past few weeks owing to the rollout of the Covid-19 vaccine.

US Dollar (USD) Falls as Growing US Stimulus Hopes Begin to Boost Safe-Haven Demand

The US Dollar (USD) fell against the Pound (GBP) despite the ‘Greenback’ benefiting from news that the US stimulus package could be setback.

As a result, demand for the safe-haven USD has risen as the global economic situation looks increasingly uncertain.

Howie Lee, an economist at OCBC Bank, said:

‘The euphoria around a Covid-19 vaccine will likely overshadow further easing from the Federal Reserve and a fiscal relief package in the near term.’

Last week also saw the release of the University of Michigan’s flash Consumer Sentiment Index, which beat forecasts and indicated a surge in US household confidence for December.

Richard Curtin, the survey’s chief economist, commented on the report:

‘Most of the early December gain was due to a more favourable long-term outlook for the economy, while year-ahead prospects for the economy as well as personal finances remained unchanged.’

However, Covid-19 vaccine rollouts throughout the UK and Europe have weakened demand for the safe-haven US Dollar.

GBP/USD Forecast: Sterling Could Head Higher on Brexit Deal Hopes

US Dollar (USD) traders will be awaiting tomorrow’s release of November’s US Industrial Production data.

Any improvement in America’s industrial sector could further bolster confidence in the world’s largest economy and weaken demand for the ‘Greenback’.

Pound (GBP) investors will be monitoring tomorrow’s publication of the UK Unemployment Rate data for October.

If UK joblessness continues to rise, then we would see Sterling suffer.

Brexit developments will remain in focus, however, with any indications of the UK and the EU securing a post-Brexit trade deal being GBP-positive.

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