FX – Pound Recovers as U.K. Signals

(Bloomberg) — The pound erased its losses after the U.K. signaled it wouldn’t immediately abandon Brexit trade talks.

Sterling recovered against both the dollar and the euro after an earlier drop, following a report that European Union leaders meeting Thursday in Brussels will say progress hasn’t been sufficient.

U.K. Prime Minister Boris Johnson had previously said he will walk away from the talks if there is no clear progress by the summit. He’ll now make a decision on whether to end talks after this week’s meeting, according to a person close to the negotiations.

The pound rose as much as 0.3%, before trading little changed at $1.2928 as of 10:35 a.m. in London. It was up 0.1% against the euro at 90.66 pence.

“As has been the case in the past, whenever the Brexit threat was pushed further into the future, the pound tended to recover some ground,” said Valentin Marinov, head of G-10 FX strategy at Credit Agricole SA. “While this will not remove the cloud of Brexit uncertainty hanging over the pound, it will give the pound some breathing space, with investors now focusing on November for a potential breakthrough in the talks.”

Officials on both sides are still at loggerheads on several key issues including fishing rights and state aid.

The pound will remain vulnerable to the trade negotiations, but the odds of a no deal have fallen to around 20%-25% and the currency should finish the year at $1.35, according to Toronto-Dominion Bank.

Dollar Edges Higher on Vaccine Woes; Sterling Weakens

The dollar edged higher in early European trade Wednesday, holding on to recent gains following doubts about how quickly a Covid-19 vaccine will come to the market, prompting a more risk averse trading environment.

At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up marginally at 93.567, retaining recent gains after hitting a three-week low of 92.997 on Friday. FX – Pound Recovers as U.K. Signals

Pound Traders Look Beyond Brexit

Elsewhere, EUR/USD was down 0.1% at 1.1744, while USD/JPY was up 0.1% at 105.50.

Pound Sterling to Euro Exchange Rate

Risk appetite has weakened after Eli Lilly (NYSE:LLY) placed its coronavirus antibody test on hold due to potential safety concerns, less than a day after Johnson & Johnson (NYSE:JNJ) paused its Covid-19 vaccine trial because of a participant’s unexplained illness.

The coronavirus continues to tighten its grip on the Western world, with Europe, in particular, hard hit by a second wave. Many countries are now widening restrictions to try to regain a grip on the pandemic.

Worst Levels in a Month for Pound to Canadian Dollar EX

That said, the recent losses in equity markets have been pretty small and currency moves are likely to be subdued as the U.S. presidential election looms on Nov. 3.

Sterling Continues Climb as PM Johnson Moves out of ICU

“Overall, markets may still be inclined to look at the glass half full as they retain some hope around U.S. fiscal stimulus and Joe Biden’s consolidated lead in the polls which lowers the perceived risk of a contested election,” said analysts at ING, in a research note. FX – Pound Recovers as U.K. Signals

Elsewhere, GBP/USD traded 0.2% lower at 1.2906, extending declines after U.K. Prime Minister Boris Johnson repeated his threat to abandon negotiations with the EU on relations between the two after the end of the Brexit transition phase.

Pound Under Pressure U.K. Services Worst Month

Johnson’s self-imposed Oct. 15 deadline drawing near and there are few signs of an agreement being reached.

The European Union would prefer to have a Brexit deal, but it is ready in case no agreement can be reached, the Commissioner for the EU’s single market, Thierry Breton, said late Tuesday. FX – Pound Recovers as U.K. Signals

EU leaders are holding a summit in Brussels on Thursday and Friday to assess progress.

Later Wednesday, the International Monetary Fund will publish its latest Fiscal Monitor, which will track the likely path of budget deficits next year as they come to terms with the pandemic’s after-effects. The IMF on Tuesday had forecast a 4.3% contraction for the U.S. economy this year, and an 8.3% drop in Eurozone GDP. FX – Pound Recovers as U.K. Signals

Dollar Weakens Ahead of Sterling

©2020 Bloomberg L.P.

FX – Pound Recovers as U.K. Signals

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