GBP/USD to surge towards 1.37 on reduced covid cases and Brexit deal – Westpac

UK covid cases remain high but appear to have peaked. If confirmed and an EU/UK trade deal is found, GBP/USD could push towards 1.37. Failure could see it flip below 1.30, economists at Westpac report.

Key quotes

“Media and EU ‘sources’ have increased hopes for a deal next week and so disappointment is now a real risk for markets. Hopes for a deal held GBP/USD above 1.30 recently, so an actual deal may only lift GBP towards 1.35 while a faltering of talks could see GBP slip back towards 1.27.” 

“Data on new COVID-19 cases appears to have turned over the past 10 days with full lockdown in place until at least 2nd Dec. If the UK can engineer at least some easing of restrictions prior to Christmas there could be a notable sentiment lift to complete the current contracting 4Q. If sustained and combined with an actual trade deal, prospects for a full range flip for GBP/USD could reinstate potential for a test of the 1.37-1.40 area. However, the next two weeks will prove critical.”