Sterling’s Win Streak Halted by Increasing Risk of No-Deal Brexit 

 

On Friday last week, the pound fell in its first weekly loss in a month, with experts warning any potential recovery will be held down by the growing threat of a no-deal Brexit.  

GBP/USD fell 0.11% to $1.3262 and is set for its first weekly slump since the week commencing August 02, 2020. 

The pound’s recent run was partially supported by the U.K. government’s success in preventing a second wave of Covid-19, but fears the virus will return in no time if measures in other parts of Europe are unsuccessful in containing the virus. 

The potential of the virus resurfacing and the conflict of UK to leave EU without a trade deal at the end of year, when the Brexit transition period ends, mean the pound may struggle to find its footing. 

“We believe that the GBP exchange rate has limited further potential for recovery in the short term,” … the “end of the Brexit transition period is approaching, which should also bring the risk of a no-deal Brexit more into focus,” Commerzbank Said. 

Without the Brexit deal, the UK would trade with the EU and WTO rules starting next year onwards, which would be a “bitter blow for both sides in real economic terms, but above all for the British economy, for which the EU is by far the largest trading partner,” the bank added.  

Governor Andrew Bailey, suggested negative interest rates could have a role to play should the recovery waiver. The purpose of the negative interest rates is for small enterprises and other ventures to grow and aid in the economic growth of UK. 

TECHNICAL OUTLOOK 

On Monday morning, the sterling fell significantly after it’s drop on Friday last week. The ongoing conflicts with Brexit gave the sterling a negative outlook in the opening of this week’s trading. 

Although the U.S. market is on a Labour Holiday and lack of participants from U.S. may slow down volatility, unfortunately this is not the case for the sterling. The dollar seems to hold ground. The sterling opened on Monday morning in 1.327. The dollar pushed the price lower on the opening of London session further pulling it down to 1.322.   

Investors are coming back to the U.S. dollar as a safe-haven further driving other major currencies such as the AUD, EURO and GBP lower this week. Dollar bulls seems to have the upper hand for this week’s trading yet it’s too early to forecast any possible shift for the other major currencies.  

 

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