GBP/USD struggles to capitalize dollar weakness, falls once the tide turns

GBP/USD has everything in its favor – except Brexit uncertainty. But several positive developments should have resulted in a significantly stronger pound, and its failure to rise opens the door to falls once the tide turns in favor of the dollar, FXStreet’s analyst Yohay Elam reports.

Key quotes

“American and Chinese negotiations held a telephone call overnight and announced progress – with more to come. Contrary to the heightened rhetoric of recent weeks, when it comes to trade, the world's largest economies are aligned. Markets like that, pushing stocks higher and the safe-haven dollar lower.” 

“Coronavirus developments have been positive, with England and Wales reporting the lowest number of COVID-19 deaths in 21 weeks. When it comes to cases, the UK is also doing better than many peers – large European countries are seeing increasing infection rates. Hopes for a vaccine to the disease that is gripping the world are also high – Pfizer hopes to produce millions of doses before the end of the year.” 

“The latest round of inconclusive Brexit talks last week – and the lack of any progress since then – is weighing on the pound. The clock is ticking toward year-end and investors seem to begin factoring the risk of a no-trade-deal exit – unfavorable for the UK economy.”

“The next substantial market move depends on America's central bank. Jerome Powell, Chairman of the Federal Reserve, will deliver a critical speech on Thursday, laying out a new policy framework. A shift toward allowing higher inflation – which some market participants expect – would mean lower interest rates for longer and a weaker dollar.”