Sterling hits nine-week high overnight; steadies before next Brexit talks

Sterling edged up in early London trading on Monday after reaching a nine-week high versus the dollar overnight, as Democrat Joe Biden's victory in the U.S. presidential elections saw global markets at new highs and riskier currencies gaining.

Sterling edged up in early London trading on Monday after reaching a nine-week high versus the dollar overnight, as Democrat Joe Biden's victory in the U.S. presidential elections saw global markets at new highs and riskier currencies gaining. Global equities rose and the dollar fell to a 10-week low overnight as investors turned optimistic that a Biden presidency would result in a bigger fiscal stimulus package for the United States and calmer global trade.

The pound rose overnight but erased some gains early London trading as the dollar recovered, while investors focussed on a new round of Brexit negotiations. The United Kingdom left the European Union in January, but the two sides are trying to clinch a trade deal before the status-quo transition period ends on Dec. 31.

ING FX strategists wrote in a note to clients that they expect a deal to be reached. "We therefore lean in favour of a GBP-positive outcome, although the lack of short-term risk-premia or net-short positioning in GBP both highlight lingering complacency to no-deal risk and a magnified downside risk if negotiations collapse," they wrote.

At 0913 GMT, the pound was slightly up versus the dollar at $1.3158. Versus the euro, it was up around 0.1% at 90.290 pence. Over the weekend, Britain and the EU both said that key differences remain in negotiations. British Prime Minister Boris Johnson, however, later said that he could see the broad outlines of a deal.

Britain said on Monday it was open to "sensible" compromise on fishing, a sticking point in negotiations. Ireland's foreign minister, Simon Coveney, said that Biden's election victory could have an impact on Brexit negotiations, because Biden is "a real friend of Ireland".

The speculative net short position on the pound got bigger for the second week in a row in the week to Nov. 3, according to weekly CFTC futures data. The Bank of England said on Thursday it would increase the size of its bond-buying by 150 billion pounds, which was more than expected, to cope with more economic damage from coronavirus lockdowns and Brexit.

The BoE said it was still looking into the pros and cons of taking interest rates negative, but gave no update on the process.

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