The combination of the continued weakness of the USD and the hope that prayers will finally be answered and light is beginning to be seen at the end of the tunnel that a vaccine is on the way to end the pandemic has made world currencies like the British pound so far contributed to an encouraging trading week.
The GBPUSD hit the 1.33 mark during Wednesday’s trading, only about 20 pips away from more than 2-month highs that have not been broken since early September.
Looking at the chart below, it is possible that potential sterling buyers are waiting for the GBPUSD possibly closes above 1.3320 before succumbing to the temptation to consider a move that could eventually lead to 1.34.
However, sterling optimists need to be aware that it is the weakness of the USD that has helped propel world currencies like the GBPUSD higher in trading this week.
From a UK perspective, there is not much positive to say about the outlook for GBP. Certainly the increased hope that a vaccine is on the way to approval reduces the risk that the Bank of England (BoE) will ease monetary policy in any way, although apart from this aspect, which is fundamentally the appetite for GBP assets increased, not much moved.
Brexit remains as mysterious as ever. It also seems that another round of Brexit negotiations between UK and EU negotiators will end with investors left empty-handed. This means that there is still no agreement in sight. It was hoped that something would be agreed this month to help overcome the lengthy Brexit trade hurdle, but like much else with Brexit, there isn’t much that has been agreed upon and no one seems to know what is going on behind the scenes is going.
To add even more salt to the wounds of GBP pessimists, the UK economy is back in lockdown and there are doubts that lockdown restrictions will be lifted as originally planned for early December.
Domestic political risks are also mounting, as two high-ranking allies of UK Prime Minister Boris Johnson left their offices within the last week. This raises suspicions of a possible power struggle with 10 Downing Street, although fears are not yet so great that the leadership that could lead to further general elections in the UK is questioned.