The Sterling is Under Pressure Due to a Non-existent Brexit Deal 

The Euro rallied on Tuesday due to the upbeat economic sentiment data from Germany. Meanwhile, Brexit talks went down to the wire, and muted trade in the G10 group of currencies left the Sterling the biggest mover.

In December, German investor sentiment rallied more than expected. According to a survey, traders contemplated the possibility that vaccines against the Covid-19 would boost the outlook for Europe’s largest economy.

The ZEW economic research institute reported that its survey of investors’ economic sentiment soared to 55.0 from 39.0 in the previous month.

The data also aided the Euro to stay higher versus the greenback, even though third-quarter gross domestic product figures for the eurozone were revised. The common currency traded higher by 0.04% to the dollar at $1.2112 on Tuesday. Meanwhile, the dollar was almost flat against a basket of currencies.

The big mover was British Pound Sterling, which plummeted down against both the U.S. currency and the Euro. Investors grew more cautious awaiting the outcome of Brexit trade-deal talks.

Only three weeks remain for Britain to fully complete its exit from the European Union. However, leaders haven’t managed to narrow differences on a post-Brexit trade deal thus far.

Against the dollar, the Sterling tumbled down by 0.4% at $1.3330 on Tuesday. It also plummeted by 0.4% against the Euro at 90.88 pence.

What do the experts think?

Andreas Steno Larsen, the chief global strategist at Nordea, stated that it’s a completely headline-driven price action. He added that it is very tricky to handle as an investor. The market base case is obviously still a trade deal when judged from betting markets. At the same time, no one dares to call the no-deal with WTO-tariffs scenario. We can expect a grim trading period for the pound if negotiations break down.

On Monday, investors pushed the British currency more than two cents lower against the greenback. British Prime Minister Boris Johnson stated that he would travel to Brussels this week for the last chance to secure a trade deal. His statement hit the sterling hard, but it regained some of that ground on Tuesday. Despite that, the pound still traded on the defensive.

Jane Foley, Rabobank head of FX strategy, noted that Johnson plans to travel to meet European Commission President Ursula von der Leyen later this week. That means that all is not lost with respect to a deal. Nonetheless, it may be a bit of a long shot to expect that the negotiators can suddenly find a new angle to compromise on.