GBP/USD falls to 3-week lows on stronger US dollar

• Cable breaks 3-day range and tumbles, resuming the downside.  
• DXY heads for the highest close since December 17.  

The GBP/USD pair dropped further during the US session as the greenback extended its rally across the board. Cable bottomed at 1.2843, hitting a 3-week low.  

As of writing trades at 1.2855/60, about to post the lowest close since mid-January. After consolidating during three days, the pair broke to the downside, resuming the move that started two weeks ago from levels on top of 1.3200.  

The main driver was US dollar’s strength. The Dollar Index rose above 97.00, to the highest since December. It is on its way to the eighth daily gain in-a-row. Higher US yields supported the greenback.  

The pound was hit by the prevailing Brexit uncertainty and weak data released today. UK GDP December numbers were particularly weak. The economy grew at a 0.2% rate during the fourth quarter, affected by construction, net trade and investment. Another negative detail was the fourth quarterly decline in business investment.

Regarding Brexit, the government said it is not considering a customs union with the European Union. On Tuesday, PM May will deliver a statement to MP (initially scheduled for Wednesday) while Brexit Secretary Barclay will meet EU Chief Negotiation Barnier.  

“It remains our central view that a deal will be stuck between the UK and the EU pushing a hard Brexit off the table. During the ensuing transition phase that would follow a soft Brexit, negotiations would then turn towards the future trade relationship. This implies that any initial GBP rally would likely be dampened by continued political wrangling“, said Rabobank analysts.  

In the US, the main attention continues to be on another potential government shutdown on Friday and the ongoing trade talks between China and the US.  
 

GBP/USD