For pound traders who have weathered more than for years of Brexit talks, anything short of a resolution one way or the other by the beginning of November is a distraction.
Analysts say that in order for both sides to prepare for new trade terms in 2021, there needs to be at least a broad outline of what they’ll be at the start of next month. Combined with what could be contentious U.S. presidential election, that is leading to the cost of hedging against swings in the pound peaking in three weeks.
“Two months is the absolute minimum required to legislate for a deal, if one is done,” said Adam Cole, head of currency strategy at RBC Europe.
“So early November is the real deadline. If it’s clear at that point that we are heading for no deal for sure, we have around 5% downside across the board.”
Traders weren’t overly vexed Friday by Prime Minister Boris Johnson’s announcement that the U.K. is preparing to leave without a trade deal, with MUFG Bank strategist Lee Hardman describing that as political posturing.
The pound erases losses to trade 0.1% higher at $1.2932 in Asia on Monday after Bloomberg News reported that British officials were prepared tore-write Johnson’s lawbreaking Brexit legislation to revive failing talks with the European Union.
In the daily charts of GBP/USD, the pair gained early Monday morning in Sydney session.
The GBP/USD pair edged up 0.20% to 1.2938. The U.S. Dollar Index inched down 0.04% to 93.672 by 9:40 PM ET (1:40 AM GMT), following a 0.07% rise the previous week over surging number of COVID-19 cases and the impasse in congress.
As what we can see in the daily charts of GBP/USD, the pair is still trading inside the area of support at 1.2688 and resistance level at 1.3476. With the uncertainty of investors in the U.S. dollar, they are now looking for other safe-haven currencies.
Despite the negative economic outlook of U.K. due to the uncertainty of Brexit and the resurgence of COVID-19 and re-implementation of lockdowns, the sterling seems to be gaining from the losses of USD.
Further confirmation of the gains of the sterling will be re-assured on the coming trading days this week as talks of an imminent win of Joe Biden will further damage the dollar.
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