The Pound Sterling surged in the early hours of the London session with hopes that the Brexit deal will go through. GBPUSD hit a fresh two-month high on Monday.
Three core events can be said to be responsible for the sudden rally. Reports that the UK could approve a coronavirus vaccination, better than expected Markit PMI data, and optimism around the Brexit deal. GBPUSD has gained over 100 pips since the London session opened. The pair is on course to hit the 1.348 peak, therefore, opening the gate to the 1.4 psychological level in the long term. Cable traders will look forward to the FOMC coming later this week for more traction. The greenback remains on a setback due to vaccine hopes.
Vaccine developments trigger risk-on
After a minor surge on Friday, another optimistic vaccine development weakened the buck against its major peers. AstraZeneca, another pharmaceutical company, has said that its coronavirus vaccines have shown 70% average efficiency. Earlier in the month, Pfizer and Moderna declared efficiencies of 90% and 94% respectively. The market is building hopes around these reports despite lockdown extensions across the US and Europe.
Stimulus Package and more QEs – more USD weakness?
The banks are back with their generosity toward the market. The US Federal Reserve Bank is expected to enlarge its QE program later this week. The BoE and RBA took similar steps last week. Although the latest speeches from the high-rank Fed officials suggest complete economic recoveries from Covid could take up to 2023, investors continue to keep high hopes. Will the Fed provide as much support as the market anticipated or will hold on for the current political struggles in the country to die down?
In addition, the congress is set to resume talks and might soon come up with the highly anticipated stimulus package. We might see more of a risk-on this week as against last week’s range-bound actions across the markets due to the switch from optimism (vaccines and stimulus hopes) to pessimism (rising covid cases and extended lockdowns).
Effects on USD and Equities
The dollar index has slumped by over 2% in November. It currently approaches 92.1 before the 91.75 support level. We might therefore see the dollar drop to its lowest before September 1 if the markets ignore lockdowns and rising virus cases but instead focus more on the positive sides. In extension, EURUSD could challenge 1.19 and break above it toward 1.2 this week or early December.
On the other hand, equities have gained marginally ahead of the New York opening. The S&P 500 (US 500) has gained over 11% in November and 0.9% so far on Monday (11:00 GMT). Dow Jones (US 30) is also up by 12% in November but has slid by 0.7% on Monday. Nasdaq (US 100), however, has been less impressive with just a 7% November gain. We should see more rallies on equities
Commodities – Gold, Silver and Oil
Gold has resumed its safe-haven status. Together with Silver, the yellow metal remains laid for more slaughter as investors cut down bid for safe havens. Oil, on the other hand, remains upbeat. After a reasonable recovery last week, the metals are back on the back foot on Monday as a result of fresh vaccine optimism. Gold is breaking below $1865 while Silver is running below $24 before noon (GMT) on Monday. The bears could take control toward the last lows recorded at $1855 and $23.6 respectively for the two precious stones.
Meanwhile, the oil market maintains bullish momentum since mid-November. WTI is up by over 25% in November. WTI and Brent oil currently exchange for $42.8 and $45.5 respectively (11:00 GMT). There is a big potential for a much bigger rally but the two oil benchmarks seem to be approaching a major resistance zone (late August high).