During Monday's session, the pound is one of the most strongly gaining currencies against the US dollar, falling to two-year lows. As Citi analysts note, GBP / USD should continue to benefit from the weakness of the "greenback", which will push the quotes around $ 1.35. The implementation of the scenario is to be supported, among others, by the Brexit agreement and the purchase of vaccines from Pfizer. At the end of the month, it is also worth paying attention to the euro exchange rate, which almost brushes against the level of 1.20 (significant resistance) during the day, which for many funds and institutional investors is the day of rebalancing their portfolios.
- The dollar to the basket of currencies fell to over two-year lows on Monday
- As a result, the EUR / USD currency pair approaches the level of USD 1.20, which, according to ING analysts, may be difficult to beat
- The pound rate is also expected to benefit from the wave of USD weakness, heading towards USD 1.35, which would allow a test of last year's highs
Dollar Exchange: Flows back into risky assets leave the USD under pressure
The new week starts on a generally positive background. The Asian PMI in November was mostly encouraging, pointing to a "V" - not "W" - of shapely recovery in the region, while the vaccine news sounded promising. The UK may be the first Western country to approve a Pfizer vaccine (this week).
Clouds are visible on the horizon, such as the acceleration of the Covid-19 epidemic in the US or OPEC + widening the supply boundaries (oil loses 2%) and Washington's extension of the ban on Chinese companies with allegedly military connections. These clouds should not, however, derail an overall positive risk environment, with approximately $ 36 billion of portfolio flows returning to emerging markets over the past month - mostly at the expense of the dollar.
- Unless there will be a lockdown in the United States in December, large enough to cause a capital correction, in our opinion the dollar will remain under pressure. DXY fell out of the three-month trading range in the red last week and we are in favor of it continuing to drift downwards , commented ING analysts.
Euro exchange rate: Which way will the scales of market forces be weighed at the end of the month?
It is the end of November, which usually means some large flows on the purchasing side around the market fixing, which takes place at 5:00 PM Polish time. For example, rebalancing means that if stocks outperform bonds on a monthly basis, you can sell stocks and buy bonds to rebalance your portfolios.
The same applies to the geographic situation, e.g. if European equities surpass US equities this month (Euros Stoxx + 19%, S&P 500 + 11%) then you can sell European equities (and Euro ) at 5pm, to restore the balance of wallets.
- We've seen some other reports suggesting that it is quite the opposite - that is, that the dollar is being traded during today's fixing - so let's see. 1.2000 / 2010 may be a difficult nut to crack for EUR / USD ahead of the meeting of the European Central Bank on December 10, ING analysts explained on Monday.
The pound rate: Brexit deal seems close
Reports suggest that the Brexit deal may be close to being signed once the catch issue is resolved with a transition period. If it is announced this week, it could be enough to send EUR / GBP back to 0.8860, while boosting GBP / USD towards an important resistance of 1.3500 amid a weak dollar environment. The news that the UK could be the first country to approve and introduce a vaccine could also help the British pound.