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Brexit Deal in the Balance, Sterling Slipping

FOREX

As all weekend reports of Brexit deal progress were quashed ahead of the European open, GBP slipped sharply against all others, dropping close to 2 cents against the USD as markets ratcheted up the implied probability of a disruptive end to the transition period on Dec31. Options markets clearly took note, with short-end GBP options premiums shooting to fresh multi-month highs. GBP/USD traded as low as 1.3225 before staging an impressive bounce - rising to just below 1.34 ahead of the US close.

Nonetheless, GBP was the poorest performing currency in G10 Monday. NOK, AUD and SEK were the strongest. A bounce in oil prices after early underperformance helped boost commodity-tied currencies, with WTI returning into positive territory ahead of the COMEX close on broad USD weakness.

Focus Tuesday turns to the ongoing Brexit negotiations and Germany's ZEW survey.

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