GBP/USD looks to the downside due to pound vulnerability

GBP/USD has started the week flat, near the 1.31 level but US-UK trade talks, PMIs and Brexit are all in play and pointing to weigh on the cable. The greenback has also reasons to struggle but the pound seems more vulnerable, in the opinion of FXStreet’s analyst Yohay Elam.

Key quotes

“The UK’s coronavirus situation seems to be going in the wrong direction. The government is working on plans to prevent a broad nationwide lockdown – the mere floating of the idea is a negative sign. It is essential to stress that while certain areas are seeing an increase, broad UK figures remain under control, at least for now. Nevertheless, Britain was hit hard by COVID-19 and may, therefore, act more cautiously, even if that weighs on the economy.” 

“Liz Truss, UK Secretary of State for International Trade is in America for talks with US Trade Representative Robert Lighthizer to try to negotiate a post-Brexit trade deal. Despite the ‘special relationship,’ negotiations have yet to yield any progress and expectations for an accord before the US elections are low. Further reports of a delay may weigh on the pound while an unlikely breakthrough could boost it.”

“GBP/USD may benefit from the weakness of the dollar, potentially stemming from disappointing data. The ISM Manufacturing Purchasing Managers’ Index is set to remain in growth territory despite the surge in coronavirus cases. The industrial sector suffered less than the services one, but high estimates may lead to disappointment.” 

“Another source of grievance for greenback bulls may come from deadlocked talks in Washington between Republicans and Democrats. Special federal programs, including the all-important unemployment benefits, expired on Friday and without them, consumption could fall. Investors remain optimistic expecting politicians to splash the cash in an election year.”