Pounds briefly rose above $ 1.27 for the first time in six weeks on Tuesday as optimism over the corona vaccine and an EU agreement on important recovery funds enabled it to extend the previous day's rally.
The currency had enjoyed its best day in three weeks on Monday, lifted by a generally strong market atmosphere which allowed investors to ignore poor UK economic data and lack of concrete progress on Brexit trade talks.
Aside from the EU recovery fund agreement, preliminary data from trials of three potential COVID-19 vaccines have been promising. Lee Hardman, who is a MUFG strategist, stated, "the agreement made is an increase in the more general risk sentiment. When you have risk in equity, general pounds are profitable."
Hardman also added that the relatively bullish assessment of the British economy by Andy Haldane who is the chief economist of the Bank of England could also be a support for the pound.
The currency rose as high as $ 1.2716, the highest since June 11, but then slipped to $ 1.2681, up 0.2% on the day. Versus the euro which gave up earlier gains as news of the deal broke, sterling strengthened 0.3% at 90.15 pence, around a one-week high.
Loans Taken by the Government are Very Large
Meanwhile, data showed UK government loans reached a record 127.9 billion pounds ($ 162 billion) in the first three months of the financial year 2020/21 - more than double the total for the previous year. June loans alone, excluding state-owned banks, were 35.5 billion pounds, five times higher than the previous year.
Analysts from Commerzbank said if the economy and Brexit risk resulted in the pound having to be able to fight against headaches, this must be done especially when economic conditions force the Bank of England to consider negative interest rates at the August meeting.
Short positions are in the level range in December 2019, reflecting speculative positions in pessimistic sterling. This can happen when investors protect the value of the prospects of parliament hanging in the general election.
Today the pound sterling has experienced a mild weakening of 0.10% against the US dollar. With that, the GBPUSD pair must be willing to move away from the daily peak at 1.2685 to 1.2675. The weakening occurred ahead of the opening of the European market which is usually very crowded. Meanwhile, the advance to the previous daily peak came as many investors were optimistic about trade talks between the US and Britain.
Poundsterling Continues to Wrest Back to Increase
Despite recording a weakening, today the pound sterling still has the potential to strengthen again. Because the US Dollar recently has been at its lowest point in the last 19 weeks. So that helps GBPUSD to go back higher.
Some optimism supports the British Pound's risky assets. One of them is optimism on the agreement of aid funds from the EU leadership. The latest offer is a recovery fund of 350 billion euros in loans and the remainder is a grant. Tight talks on this issue since last week greatly moved global risks. Because the future of the European economy is very determined from this meeting.
The struggle of US policymakers also determines the direction of the next GBPUSD. Given the stimulus funds that will be issued by the US Senate are predicted to not be following what is in demand. Democrats themselves are asking for funds of $ 3 Trillion and only $ 1 Trillion will likely be approved.
In addition to financial problems today, the Pound can also get an additional boost from the Coronavirus vaccine news. The collaboration between the University of Oxford and AstraZeneca has reportedly succeeded in releasing satisfactory clinical trial results.
Investors around GBPUSD are likely to continue to focus on the US-UK trade talks that begin today. The dynamics of Brexit also cannot be forgotten because it will determine the future of the British economy.
