GBP/USD has been falling and dipped to a low of 1.3184 – the lowest since November 18 as the EU and the UK talks near failure. The ‘darkness before dawn’ scenario may trigger come short-covering later on. Concerns from the Bank of England (BoE) and stalled US fiscal stimulus talks also weigh. Therefore, sterling suffering may extend, according to FXStreet’s Analyst Yohay Elam.
Key quotes
“Markets seemed to price in a last-minute deal, and if that fails to materialize, the pound has further room to plunge. On the other hand, both sides may be putting a brave face for their local audiences before making hard concessions. In that scenario, the recent fall provides a buying opportunity.”
“Andrew Bailey, Governor of the Bank of England, added fuel to the fire by saying that there are limits to what his institution can do to mitigate the fallout from a no-deal Brexit.”
“The most likely scenario for Friday is further pressure during the day and a late short-covering ahead of the weekend. Sterling sell-off may have gone too far and there is an upside risk of a deal over the weekend.”
“Fears of lockdown in London – perhaps from Wednesday – are marginally weighing on the pound. On the other hand, the FDA’s recommendation to approve the Pfizer/BioNTech vaccine is positive for risk assets and adverse for the safe-haven dollar. Similar to Brexit, US fiscal stimulus talks are also stuck amid Republican resistance to approving a larger package – but contrary to negotiations on the other side of the pond, there is no deadline.”
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