GBP/USD has now recovered all the losses suffered on Thursday and Friday last week and is well placed to resume its earlier rally as talks continue between the EU and the UK on their post-Brexit trading relationship.
Yet again, this week has been dubbed a crucial one for the talks and logic suggests that the two sides will reach agreement simply because no deal would be damaging to both. However, they still seem way apart on several key issues so any deal is likely to be very thin.
In the meantime, GBP/USD and EUR/GBP trading can be expected to be volatile as traders react to positive and negative headlines from the discussions.
Data released Tuesday supported the more bullish outlook for GBP, with the Nationwide measure of UK house prices showing larger than expected increases.
Market sentiment positive
Another positive for GBP/USD is renewed optimism in the financial markets generally, leading to continuing flows out of safe havens like the US Dollar into currencies seen as inherently riskier, including GBP. Coronavirus vaccine hopes, the prospect of an economic recovery, and fiscal and monetary support are all helping, with news Tuesday of an unexpected increase in China’s Caixin manufacturing purchasing managers’ index the latest data point to suggest recovery.
US President-elect Joe Biden’s choice of former Federal Reserve Chair Janet Yellen as his Treasury Secretary has also been well received. In addition, current Fed Chair Jerome Powell will likely remain dovish when he testifies to Congress later Tuesday.