Pound Sterling Softens Despite Breakout Attempt As Dollar Rebounds


Just before Christmas, the last-minute Brexit trade was struck. The result is largely in line with expectations. Since Brexit cannot be avoided without a deal, the BOE should be able to keep its powder dry for a year. The likelihood of a negative interest rate has also been reduced, except for unexpected bad news related to the pandemic. Given the lack of surprises in the deal, we also expect limited upside potential for the British pound.

Sterling is losing some of its gains achieved last week after failing to break short-term resistance levels. The dollar, Swiss franc, and yen are strengthening slightly. Although with an empty economic calendar, we do not yet expect any significant changes.

Sterling has so far reacted very weakly to the UK-EU trade deal at the last minute. At the moment, the overall outlook is mixed. The details were published in a 1246-page document entitled “Draft EU-UK Trade and Cooperation Agreement.” The European Parliament is expected to meet today to discuss the agreement, and the UK Parliament will vote on December 30th.

Closing the deal by the end of the year is the basic option for the market. Indeed, the recent rally in the British pound in recent weeks suggests that the good news has already been heeded.

Undoubtedly, the news about vaccines is another factor contributing to the strengthening of the British pound. Since the deal will not come as a surprise, we expect limited gains in the pound. The inverse risk, however, is renewed coronavirus cases and vaccine problems.
Dollar Rebounds on Stimulus Checks
U.S. President Donald Trump signed a massive $2.3 trillion package that includes $900 billion in pandemic relief and also prevented a government shutdown. Trade may remain sluggish and consolidated this week, cut into the weekend.

The GOP must now respond to a Democratic-backed request from President Trump for $2,000 stimulus checks to Americans. It seems unlikely that Congress will endorse Trump’s demand for higher checks and cuts in foreign aid.

Wall Street made intraday highs but still managed to close in the green. Commodities, on the other hand, came under selling pressure amid demand for the dollar. The gold price was around $1,870 per troy ounce, while WTI oil finished the day just below $48 per barrel.

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.