FOREX-Positive economic sentiment buoys euro, Brexit weighs on pound

* Pound sinks broadly on Brexit jitters
* Dollar bid higher on surging virus cases
* Quiet trading among G10 majors
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho
LONDON, Dec 8 (Reuters) - Upbeat economic sentiment data
from Germany buoyed the euro on Tuesday, while muted trade in
the G10 group of currencies left Britain's pound the biggest
mover as Brexit talks went down to the wire.
German investor sentiment soared more than expected in
December on expectations that vaccines against the coronavirus
would boost the outlook for Europe's largest economy, a survey
showed.
The ZEW economic research institute said its survey of
investors' economic sentiment moved up to 55.0 from 39.0 in the
previous month. A Reuters poll had forecast a reading of 45.5.
The data helped the euro stay higher to the dollar, although
third-quarter gross domestic product figures for the euro zone
were revised. The euro last traded 0.04% higher to the dollar at
$1.2112 EUR=EBS . The dollar traded about flat against a basket
of currencies. =USD
The big mover was sterling, which sank against both the
dollar and the euro as caution grew among investors awaiting the
outcome of Brexit trade-deal talks.
With only three weeks to go for Britain to fully complete
its exit from the European Union, leaders have failed to narrow
differences on a post-Brexit trade deal. Against the dollar, the pound was 0.4% lower at $1.3330 by
1147 GMT. GBP=D3 It was also 0.4% lower against the euro at
90.88 pence. EURGBP=D3
"It's a completely headline-driven price action, which is
very tricky to handle as an investor," said Andreas Steno
Larsen, chief global strategist at Nordea.
"The market base case is clearly still a (slim) trade deal
when judged from prediction and betting markets. No one really
dares to call the no deal with WTO-tariffs scenario ... we could
still have a grim trading period ahead for the GBP if
negotiations break down."
Investors pushed sterling more than two cents lower against
the dollar on Monday after British Prime Minister Boris Johnson
said he would travel to Brussels this week for what may be a
last chance to secure a trade deal. The pound regained some of
that ground on Tuesday but still traded on the defensive.
Implied volatility on the pound - a measure of expected
future swings in the currency - hit eight-month highs, a sign
that traders were preparing for gyrations. GBPSWO=FN
GBPONO=FN
"The fact that Johnson will travel to meet [European
Commission President Ursula] von der Leyen later this week means
that all is not lost with respect to a deal," said Rabobank head
of FX strategy Jane Foley.
"However, given that the issues of fisheries and a level
playing field have been in the spotlight for so long, it may be
a bit of a long shot to expect that they can suddenly find a new
angle to compromise on."

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