Since the beginning of November, the exchange rate of the currency pair GBP/USD has increased by more than 3 percent, to its highest level since the end of August 2020. Thus, the pair were close to the key resistance at 1.3470, which seems to be more important as the coming weekend may be crucial in negotiations on Brexit.
Already today (Friday, 27 November) the Chief Negotiator of the European Union Michel Barnier is going to London. Earlier Barnier informed representatives of all EU countries about the current state of negotiations with the United Kingdom. Thus, the next few days, including the last weekend of November, may be crucial for the results of work on the agreement. According to Bloomberg, one of the European Union officials believes that the UK and the European Union can reach an agreement already in the first week of December. Among other EU diplomats, there is still a lack of conviction that Prime Minister Boris Johnson wants to finally sign the agreement.
On the currency options market, investors seem to be moving towards greater demand to protect themselves against a possible fall of the pound within one week. As a result, investors who want to protect themselves against such a scenario, a fall of the GBP/USD, have to pay the most for the last two months, Bloomberg data shows. The fact that the GBP/USD exchange rate is at its highest level in three months may be due to an attempt to price the scenario positively for negotiation talks. In other words, the trade agreement could be in prices.
Meanwhile, the UK's main stock exchange index FTSE 100 reached its highest level since June 2020 this week. However, the last few days seem to bring about a local correction from the area of resistance at 6500 points.
It is worth noting that today FTSE 100 is the only one of the main European stock indices that is falling by almost 1 percent. The deterioration of sentiment may be influenced by the information that the easing of restrictions after 2 December may affect only 1 percent of the population and information about the mistakes during tests of the vaccine by AstraZeneca.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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