The US dollar continued to sell-off across the board on Wednesday, with both stimulus and vaccine hopes lifting risk appetite and weighing on the safe-havens.

News that the UK is the first country in the world to approve the use of the Pfizer/BioNTech vaccine has raised hopes that other developed nations could follow suit in the coming days. This has come at a time when we’re also seeing a general easing in the number of new cases during the second wave of infection in Europe, and a continued increase in infection in the US. Among the largest four nations in the common bloc, the moving average of new cases have fallen to the lowest level since 22nd October, whereas the US yesterday recorded its second highest number of cases since the beginning of the crisis - in excess of 200,000.

Early signs of progress towards another stimulus programme in the US is also dragging the safe-haven dollar lower and has helped lift EUR/USD above the 1.21 level for the first time since April 2018. US Congress has so far been unable to reach an agreement on a proposed $908 billion relief package, although a number of top officials from both parties have noted optimsm towards getting a deal done.

Brexit talks drag on, UK services PMI revised higher

Sterling has found gains against the broadly weaker US dollar harder to come by so far this week, owing largely to ongoing market jitters surrounding Brexit.

Top officials from both sides of the negotiations remain locked in talks, with three key issues said to be holding up the agreement - fisheries, state aid for companies and rules to resolve disputes. France appears unwilling to budge on the fisheries issue, but just how far apart the two parties remain is unclear, so investors have no real timeframe on when a deal could be announced. What we do know is that the UK will leave talks without a deal in place on 1st January should an agreement not be ironed out in the next few weeks. The deeper into the month we go without news of a deal, the greater pressure sterling will inevitably come under.

Meanwhile, this morning’s UK services PMI provided reason for optimism. The index for November was revised up to 47.6 from the initial 45.8 reading. While this remains in contractionary territory, it suggests that the downturn in activity in Q4 may not be as bad as first feared. This, combined with the highly encouraging vaccine news, provide a backdrop for more gains in the pound, provided we get news shortly of a Brexit deal.