- GBP/USD dives for the second consecutive day and approaches 1.3100.
- The pound loses ground with COVID-19 cases surging in the UK.
- Brexit uncertainty is also weighing on GBP demand.
Sterling’s reversal from Wednesday’s high 1.3315 has gained traction amid a cautious market mood on Thursday, which has pushed the pair below 1.3200, to test weeks lows at 1.3120.
The pound loses footing as risk sentiment wanes
The enthusiasm triggered by the promising tests of the COVID-19 vaccine seen at the beginning of the week has waned on Thursday. Coronavirus cases continue surging in Europe and the US and the market starts to assimilate that no vaccine is going to help to curb the pandemic this winter.
The British Government announced on Wednesday that the UK has been the first European country to reach the 50,000 COVID-19 deaths, which has offset the remaining hopes of a vaccine and shifts the focus back to the strong economic impact of the pandemic.
Macroeconomic figures have confirmed these fears, contributing to undermining confidence on the GBP. UK Gross Domestic Product expanded at a 15.5% pace in the third quarter, slightly below the 15.8% expected. The monthly GDP, though has shown a 1.1% increase in September, a disappointment for the market that expected a 1.5% reading and with greater reason considering that the data has been taken before the start of the second lockdown.
Furthermore, the lack of progress in the Brexit front remains undermining confidence in the sterling. The initial target of mid-November to reach a Brexit deal is going to be missed as the negotiators have been unable to bring positions closer on the critical issues which increases the uncertainty about the post-Brexit relationship between The UK and the EU.
Technical levels to watch
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