GBP/USD holds $1.33 despite fading Brexit optimism

The pound was on the defensive on Tuesday after hopes began to fade for a Brexit trade deal being agreed this month.
 
Sterling appears to be holding its ground so far this morning, however, with GBP/EUR flat at €1.1235 and GBP/USD stable at $1.3382. GBP/CAD is buoyed at C$1.7401, while GBP/AUD and GBP/NZD climb to AU$1.8193 and NZ$1.9183, respectively.
 
Looking ahead, the European Central Bank’s (ECB) financial stability review and UK Chancellor Rishi Sunak’s mini-budget will be in the spotlight today.
 

What’s been happening?

Buoyed by lingering vaccine and Brexit optimism, the Pound continued to drift higher at the start of yesterday’s trading session.
 
However, these gains proved short-lived, with Brexit hopes starting to fade and GBP investors starting to speculate on what tiers most of England will find itself once the current lockdown ends on 2 December.
 
It was a similar story for the euro on Tuesday, with the single currency initially accelerating as Germany’s GDP figures printed above expectations, only for these gains to be relinquished after the latest IFO surveys confirmed that German business morale weakened in November.
 
The US dollar, meanwhile, struggled through the first half of the European session as news that Trump would allow the formal transition process to begin bolstered market sentiment and undermined the appeal of the safe-haven currency.
 
But the ‘Greenback’ was back on the offensive by the start of the US session, rallying on the weakness of its peers and ongoing coronavirus jitters.
 

What’s coming up?

Turning to today’s session, the focus is likely to be on the ECB’s financial stability review and UK Chancellor Rishi Sunak’s 2020 Spending Review.
 
First up will be the ECB’s financial stability review. We expect the bank to reiterate how the pandemic had ‘affected virtually all aspects of economic activity’ and warn about the financial vulnerabilities it has exposed, potentially limiting any upside in the euro.
 
Then at midday we have Sunak’s Spending Review, in which the Chancellor will discuss his plans for a post-pandemic economy. The review will also be accompanied by the Office for Budget Responsibility’s (OBR) latest financial forecasts, which could pressure the pound depending on how gloomy they appear.
 
Finally, the focus for USD investors will be on the latest US durable goods figures, where an expected slowing of goods orders last month could put a dent in the US dollar.