What has the most significant influence on the pound sterling: the unprecedented drop in the US dollar or the Brexit issue?
Earlier, the pound sterling showed a negative reaction to the announcement made by the UK's authorities. They said that the negotiations on Brexit could come to a dead end. A bit later, the British pound resumed rising. On Thursday, the pound/dollar pair reached the level of 1.345. The advance was triggered by news about the coronavirus vaccine. The UK is launching its vaccination campaign. The vaccine from the US pharmaceutical companies will be available in the UK as early as next week.
Amid the news, the UK's government decided to loosen the restrictive measures. From this weekend, people will have a chance to watch football matches in the stadiums leaving behind online broadcasting.
The weakening US dollar is also boosting the pound sterling. In fact, it is the key reason for the pound's climb. Notably, the US dollar index slumped during the last two sessions. At the moment, it is hovering around the level of 90 points.
The issue of the US stimulus measures is likely to be settled in the near future. The news about the support measures has pushed down the US dollar. However, there was plenty of such news earlier. The result of the negotiations is still unknown. Moreover, it is possible that a lot of time will be spent on arguments. At least on Thursday, the US lawmakers failed to come to an agreement.
The US statistical data is worsening while the US authorities are trying to agree on the size of the financial aid. The fact is that lockdowns in some states have an extremely negative influence on non-farm employment. Today, traders are focused on the ISM report on business activity in the US services sector in November. Moreover, the US Labor Department will reveal its data on the labor market situation. Disappointing statistical figures are likely to worsen the already shaky position of the greenback.
Thus, the number of first-time claims declined by 75 thousand. It is the largest drop since early October. Economists had expected a smaller decrease of just 3 thousand. In other words, investors were really surprised by such positive data. However, the indicator's reading is still very high. Moreover, there are more weak reports than strong ones. It means that the US dollar has no chance for a jump.
The situation is also aggravated by appetite to risk. Market participants are focused on positive news such as successful vaccine trials. In other words, they are simply ignoring risks. Expectations of additional stimulus of the US economy are also prompting investors to look to riskier assets.
The further weakness of the greenback may boost the pound sterling encouraged by the ongoing Brexit negotiations. Representatives of the EU expressed hope that the deal would be signed by Friday or during the weekends.
However, the derivatives market entered the red zone amid doubts about the UK-EU agreement. There are concerns that the UK will not sign an agreement with the EU until the end of the transition period. Notably, the transition period will last until the end of the current year. It was reported that the negotiators will hardly reach a compromise on such issues as fishing and state aid to companies.
The derivatives market is signaling about rising concerns about Brexit.