Sterling has one thing going for it no matter what happens with Brexit -- the weak dollar.
GBP/USD bulls know that cable has been on a one-way path higher since June -- like many other currencies -- and Fed policy could keep it that way even if the pound suffers a sell-the-fact reaction in the event of a Brexit deal.
This Fed stance would also mitigate the effects of a no-deal Brexit.
Though the Fed's Dec 16 statement produced mild momentary disappointment by not increasing the duration of its bond buying, its message of maintaining near-zero rates until it meets its jobs and inflation mandate, while purchasing bonds until "substantial further progress" on those aims has been made, impressed markets.
Eurodollar futures 0#ED: foresee U.S. rates holding steady near zero until the end of 2022, rising to just 1% by December 2025.
The low-for-longer Fed rate view, along with the broad global vaccine rollout, is expected to help jumpstart the post-pandemic global economic recovery -- positive for risk-sensitive currencies such as sterling.
A U.S. stimulus package only enhances that view.
For GBP/USD longs, the macro dollar weakness has protected longs from significant headline yaw and should insulate cable from potential shocks in 2021.
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