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  • A modest pickup in the USD demand prompted some fresh selling around GBP/USD on Tuesday.
  • The discovery of a new COVID-19 strain continued driving some haven flows towards the USD.
  • Hopes for a last-minute Brexit deal extended some support to the GBP and helped limit losses.

The GBP/USD pair traded with a negative bias through the early European session, albeit has managed to rebound over 50 pips from daily swing lows. The pair was last seen trading around the 1.3430-35 region, down around 0.20% for the day.

The pair failed to capitalize on the previous day’s solid bounce of over 300 pips from sub-1.3200 level and witnessed some selling during the early part of the trading action on Tuesday. The intraday downtick was sponsored by resurgent US dollar demand, though lacked any strong follow-through selling.

The discovery of a new fast-spreading strain of the highly contagious disease continued weighing on investors’ sentiment. This was evident from a weaker tone around the equity markets, which, in turn, was seen as a key factor extending some support to the greenback’s global reserve currency status.

The British pound was further pressured by the imposition of fresh lockdowns and travel restrictions in the UK. The negative factors, to a larger extent, were offset by overnight reports that the EU was considering a compromise on fishing rights – a key sticking point in the post-Brexit trade talks.

Meanwhile, British Prime Minister Boris Johnson warned that there are still problems in securing a post-Brexit trade deal. Investors, however, remained hopeful about the possibility of a last-minute Brexit deal, which extended support to the sterling and helped limit losses for the GBP/USD pair.

On the economic data front, the final version of the third quarter 2020 UK GDP came in to show that the economy expanded 16.0% QoQ as against the original estimate for a 15.5% rise. Adding to this, the annualized rate stood at -8.6% as compared to a contraction of -9.6% seen previously.

The GBP/USD pair had a rather muted reaction to the macro data as the focus remains on developments surrounding the coronavirus saga and Brexit. In the meantime, the broader market risk sentiment might continue to influence the USD price dynamics and provide some trading impetus.

Later during the early North American session, traders are likely to take cues from the US macro data. Tuesday’s US economic docket highlights the release of the final Q3 GDP report, along with Richmond Manufacturing Index, Conference Board’s Consumer Confidence Index and Existing Homes Sales.

Technical levels to watch