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Pound Rises and Dollar Falls as Traders Prepare for Brexit Update

November 16, 2020

The USD had lost some ground against other major currencies at the start of Monday’s session. At the same time, the GBP and EUR were both stronger as Britain and the European Union looked to make progress in negotiating a post-Brexit trade deal. The U.S dollar index (DXY) held firm at 92.565 at the start of the Asian session.

Since last week, market sentiment has been somewhat mixed, with some traders showing caution over a resurgence of global coronavirus cases, and others believing that a breakthrough for a working vaccine that will in turn help reignite global growth.

Hopes for Brexit compromise emerged after news Dominic Cummings, the most powerful adviser to Prime Minister Boris Johnson would leave Downing Street in mid-December.

Meanwhile, Britain’s top Brexit negotiator David Frost said on Sunday that Britain and the EU have made some progress in their post-Brexit trade deal negotiations but might fail in getting an agreement.

“This topic remains an uncertain catalyst… The market needs to be cautious that prices could fluctuate nervously on the news,” said Sumino Kamei, senior analyst at MUFG Bank.

GBP/USD edged higher, trading at $1.3226, and the EUR/GBP pair also higher at £0.8961. The EUR/USD last sat 0.16% higher at $1.1854.

Global markets surged last week on optimism that a vaccine for COVID-19 would be available soon, with the dollar rising as traders quit their long-yen positions.

“Currency moves which were prompted by vaccine news have taken a pause. With no additional, positive news on the vaccine, U.S. interest rates and stocks went into correction mode at the end of the week, and dollar/yen fell,”

Masafumi Yamamoto, the chief currency strategist at Mizuho Securities, said.
The yen edged higher at 104.49 per dollar, having posted its worst weekly performance since early June last week.

The dollar’s losses can be largely attributed to the surge in covid, with total virus cases in the U.S. now greater than 11 million on Sunday. Another contributing factor has been U.S. President Donald Trump still refusing to concede defeat, leading to many traders shifting their attention to President-elect Joe Biden’s cabinet.

“Over the weekend, uncertainty around the U.S. presidential election has declined as it became more certain that Joe Biden secured more votes, and it’s easier for traders to take risks on hopes that the next administration would soon take measures against the coronavirus,” Mizuho Securities’ Yamamoto said.

The dollar could strengthen against the yen if U.S. bonds and stocks maintain their upward moment, he added.

Trump on Sunday briefly acknowledged losing the election in a morning Twitter post but then backtracked, saying he concedes “nothing” and vowing to keep up a court fight that election-law experts say is unlikely to succeed.

Meanwhile, Biden focused on tackling the coronavirus pandemic and set meetings with pharmaceutical companies developing vaccines.

AUD traders awaited upcoming events by the Reserve Bank of Australia, with Governor Philip Lowe scheduled to speak later in the day, while the central bank’s November meeting minutes are due on Tuesday.

Analysts also said the China-backed Regional Comprehensive Economic Partnership deal signed by 15 Asia-Pacific economies on Sunday partly helped risk appetite, as investors hoped the world’s biggest trade pact would boost trades and economic ties.

The AUD firmed marginally at $0.7287 per dollar in Asian trade, supported by stronger equities. The NZD was up 0.42% to $0.6874, near a 20-month high of $0.6915 marked on Thursday.

Data on Monday showed signs of economic recovery in China and Japan, the world’s second and third-largest economies. China’s industrial output rose by 6.9% in October, more positive than predicted. Meanwhile, Japan’s economy grew at its fastest pace on record in the third quarter.

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