Cable climbed above the 1.3000 level and EUR / GBP moved closer to support at the 0.9000 level. However, fears of COVID-19 are expected to mitigate the positive impact of the Brexit news on the pound, MUFG Bank economists report.
“Amid Wednesday’s lockdown gloom, there was a glimmer of light in the form of a Bloomberg report suggesting that a Brexit deal ‘was getting closer.’
“Price action underscores that it will be more difficult for the pound to strengthen amid growing optimism over the Brexit deal, as fears continue to mount over the need for economic restrictions. The pound remains sensitive to fluctuations in risk sentiment. We would expect the pound to underperform again if risky assets corrected lower. ”
“Prime Minister Boris Johnson is under increasing pressure to consider reintroducing lockdown measures in the UK. The latest report from Imperial College London and Ipsos Mori estimates infections are doubling every nine days. It took some of the shine from the positive news that there has been progress in Brexit trade talks this week, which has heightened optimism that a deal could be reached in early November. According to Bloomberg, the two sides have started work on the text of a level playing field deal and are close to finalizing the state aid document. They also came closer to deciding the essential aspects of how the agreement will be implemented.
“Overall, the developments support our view that it will be difficult for cable to go beyond 1.3000 to 1.3500 under the current circumstances, even if a deal is struck.”