- GBP/USD has mostly gone sideways around the 1.3300 level in recent trade, as Brexit news flow quietens down.
- GBP is the G10 underperformer on Thursday, as hopes for a Brexit deal hang by a thread.
GBP/USD has mostly traded sideways in recent trade around the 1.3300 level, having recovered from worst levels just below 1.3250 hit shortly before the start of the US trading session. The pair still trades with losses of nearly 100 pips or 0.7% on the day, however, as Brexit deal hopes hang on by a thread.
Brexit woes see GBP/USD underperform
UK PM Boris Johnson and EU Commission President von der Leyen’s much-anticipated meeting on Wednesday evening in Brussels did not deliver. The two acknowledged that significant gaps between the UK and EU’s demands regarding their future trading relationship remain and it is not clear if a deal can be reached. The two leaders directed their negotiating teams to continue to try to find a solution to the impasse, with the UK PM saying he did not want to leave any potential routes to a deal untested.
The two leaders agreed that a firm decision on the future of negotiations should be taken by Sunday (so this is the new make-or-break date). But the odds now seem to be tilting resounding in favour of a no-deal being the most likely outcome, rather than a deal, hence the downside pressure seen in GBP on Thursday. Officials on both the EU and UK sides have essentially said that the only route to a deal is if the other side compromises. Both sides seem to be digging in their heels.
But GBP/USD bulls continue to buy the dip in the 1.3250 area, and as long as there continues to be hope that a deal might be reached, this may continue to be the case. However, should Sunday’s deadline arrive and the EU and UK arrive at the decision that a deal is not possible and it is better to focus on no-deal planning, this level is likely to quickly go.
Elsewhere and also potentially adding some weight on GBP on Thursday is the news that London, the UK’s capital city where approximately 22% of the country’s economic activity occurs, maybe moving to Tier 3 Covid-19 restrictions on 19 December, amid a rise in the Covid-19 positivity rate in the city to above 7% (above the national average of 5%). The official decision comes on 16 December (so next Wednesday) but has reportedly already been made.
Levels to watch in case of Brexit no deal
In case talks between the UK and EU on their future trading relationship do fail, the downside reaction in GBP/USD is likely to be extensive. As noted above, the first area of support to go is likely to be the 1.3250 area. Then, eyes will be on the psychological 1.3200 level and then the pair’s 50-day moving average just below 1.3150. Below that, there is also decent support in the 1.3100 area (the 12 November low).
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