Sterling rose during Wednesday’s trading sessions as the UK parliament voted the Brexit agreement into law the day before the UK officially ends the transition trading period, which has insulated the UK from economic damage throughout 2020.
From January 1 the UK will no longer be in the customs union and single market. The only concession the country obtained concerns not suffering export and quota tariffs, but the frictionless movement of goods, services, finance and people is now ending.
Sterling rose versus its peers due to the perception that the UK economy and political landscape will be more stable, despite the projection that UK GDP will fall by 4% per annum for successive years due to leaving the free trade area.
Sterling rises after Brexit deal made law
At 10:00 pm UK time GBP/USD traded up 0.90% above R3 at 1.3624 reaching a level last seen in May 2018 and registering a 2.85% YTD rise. EUR/GBP fell by -0.54%, maintaining a significant 6.61% rise YTD. Versus the safe-haven currencies of yen and the Swiss franc, GBP also registered substantial gains. GBP/JPY traded up 0.55% while GBP/CHF traded up 0.60%.
As sterling rose the FTSE 100 index, mainly populated by US firms, fell sharply wiping out the recent post Brexit agreement relief rally gains. The index closed -1.39% down. Other European indices also slipped; the German DAX 30 ended the day down -0.70% falling from the record highs printed over recent sessions. France’s CAC 40 index closed -0.67% down.
US dollar falls versus all its main peers
The euro experienced mixed fortunes versus its main peers during the day’s sessions; falling versus GBP the Eurozone’s single currency rose versus USD. EUR/USD traded up 0.37%, EUR/CHF and EUR/JPY ended the day’s sessions close to flat, although both currency pairs whipsawed in broad ranges, oscillating between bearish and bullish conditions.
The gains registered against the dollar during Wednesday’s sessions were partly due to US dollar weakness instead of euro and sterling strength. USD/CHF traded down -0.30%, USD/CAD down -0.49% and USD/JPY traded down -0.32%.
The dollar index traded down -0.40% trading below the critical 90.00 round number level. The US equity indices experienced fluctuating values, and the SPX 500 ended the day up 0.13% while the NASDAQ 100 tech index closed 0.15% up.
The US pending home sales reading came in below forecast at -2.6% MoM, while gas and oil inventories fell sharply, suggesting that a recovery of sorts might be gathering pace in the USA.
The announcement that the UK authority has approved another vaccine also helped improve sentiment. The AstraZeneca drug developed in conjunction with Oxford university could be a game-changer due to its robustness compared to other vaccines. It gets stored at average fridge temperatures; consequently, the logistics and distribution issues are not as complicated as Pfizer’s alternative.
Gold and silver set for annual gains not seen for many years
Gold surged during Wednesday’s trading sessions, breaching R2 late into the New York session. The precious metal traded up 0.87% at $1,894 per ounce, threatening to break through the round number/handle of $1,900 per ounce. Gold is up close on 25% year-to-date. As the year ends silver is closing in on a rise of 50.00% at $26.64 per ounce, the security’s best annual growth-performance in decades.
Economic calendar events to watch out for on Thursday, December 31 Several trading sessions will be cut short in many zones on Thursday, the last trading session of 2020. The focus on the economic calendar is the latest weekly unemployment claims in the US. The forecast is for 833K, a reading that would suggest the US economy and society is still suffering the effect of the COVID-19 pandemic.