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  • GBP/USD witnessed aggressive selling on Monday in reaction to new COVID-19 lockdown in the UK.
  • A turnaround in the global risk sentiment benefitted the safe-haven USD and added to the selling bias.
  • Extremely oversold conditions prompted some short-covering bounce and helped limit further losses.

The GBP/USD pair trimmed a part of its heavy intraday losses and has now recovered nearly 100 pips from sub-1.3200 levels, or over one-week lows touched during the mid-European session. The pair was last seen trading around the 1.3275-80 region, still down around 1.80% for the day.

The pair opened with a bearish gap and witnessed some aggressive follow-through selling through the first half of the trading action on the first day of a new trading week. The steep decline was led by the imposition of tougher lockdown restrictions in the UK amid the discovery of the new variant of coronavirus.

According to the government’s top scientific advisors, the new strain was up to 70% more transmissible than the original. This comes on the back of the lack of progress in the post-Brexit trade talks, which took its toll on the British pound and was seen as a key factor exerting heavy pressure on the GBP/USD pair.

Meanwhile, the developments overshadowed news that Republicans and Democrats reached an agreement on a long-awaited $900 billion package over the weekend. This was evident from a sharp pullback in the equity markets, which provided a strong lift to the US dollar’s safe-haven status and contributed to the selling bias.

The GBP/USD pair plunged to daily swing lows, around the 1.3190-85 area, summing up to nearly 450 pips of fall from the 1.3625 region, or over two-and-half-year tops touched last Thursday. However, extremely oversold conditions on intraday charts helped limit further losses, rather prompted some intraday short-covering move.

That said, the near-term bias now seems to have shifted back in favour of bearish traders amid renewed coronavirus jitters and persistent Brexit-related uncertainties. In the absence of any major market-moving economic releases, investors will keep a close eye on COVID-19 situation and the incoming Brexit-related headlines.

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