FOREX-Pound on the defensive as Brexit deal talks go down to the wire

  • 12/8/2020
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* Pound sinks broadly on Brexit jitters * Dollar bid higher on surging virus cases * Quiet trading among G10 majors * Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E LONDON, Dec 8 (Reuters) - Britain’s pound was the biggest mover in otherwise quiet trade among the G10 group of currencies on Tuesday, falling broadly as caution grew among investors awaiting the outcome of Brexit trade deal talks that have come down to the wire. With only three weeks to go for Britain to fully complete its exit from the European Union, leaders have failed to narrow differences on a post-Brexit trade deal. Against the dollar, the pound was nearly half a percent lower at $1.3323. Against the euro, it was 0.3% lower at 90.74 pence. Investors grew increasingly jittery at the start of the week, pushing sterling more than two cents lower against the dollar on Monday after news that British Prime Minister Boris Johnson would travel to Brussels this week for what some say will be a last roll of the dice to secure a trade deal. The pound recovered some of that ground on Tuesday but still traded on the defensive. “Sterling has demonstrated that there has been a shift in confidence surrounding a Brexit trade deal in the past few days,” said Rabobank’s head of FX strategy Jane Foley, who noted the simultaneous weakening of the pound and increase in option volatility. Implied volatility on the pound - a measure of expected future swings in the currency - hit 8-month highs, a sign that traders were bracing themselves for gyrations. “The fact that Johnson will travel to meet von der Leyen later this week means that all is not lost with respect to a deal,” Foley added. “However, given that the issues of fisheries and level playing field have been in the spotlight for so long, it may be a bit of a long shot to expect that they can suddenly find a new angle to compromise on.” Elsewhere, concern at surging coronavirus cases in the United States cast a shadow over optimism about vaccinations and fiscal support for the U.S. economy - sapping bulls’ momentum. Against a basket of currencies, the greenback edged higher to 90.969 and the Australian and New Zealand dollars took a breather and held near recent peaks. The euro sat at $1.2102. “We continue to see the broad dollar under pressure, said OCBC Bank strategist Terence Wu. “However, there seems to be some fatigue setting in, with the upside momentum for the likes of euro and Aussie fading somewhat ... any negative headlines may provide an excuse for a risk-off tilt.” In Asia, that came from a coronavirus surge in South Korea which stalled a rising won and wobbled the Kospi stock index. In the United States, California has shut all but critical infrastructure and retail operations in its worst-hit areas as U.S. COVID-19 infections are at their peak, with an average of 193,863 new cases reported each day over the past week. Anthony Fauci, the U.S. government’s top infectious disease expert, warned mid-January “can be a really dark time for us” if gatherings over the holiday season spur even greater spread of the virus. The U.S. Congress will vote this week on a stop-gap funding bill to provide more time for lawmakers to reach a deal on a bigger COVID-19 relief package. That could renew dollar selling by improving investors’ appetite for riskier currencies. But after so many false dawns on the stimulus front traders were content to wait and see. Later on Tuesday business sentiment surveys in Germany and the United States are due and will offer some sense of how deeply the latest wave of COVID-19 has hurt consumers’ mood. (Reporting by Ritvik Carvalho; additional reporting by Kevin Buckland in TOKYO and Tom Westbrook in SINGAPORE, editing by Ed Osmond)

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