- GBP/USD witnessed some heavy selling on Monday amid increasing risk of a no-deal Brexit.
- A softer risk tone benefitted the safe-haven USD and further contributed to the selling bias.
The GBP/USD pair added to its heavy intraday losses and plunged to over two-week lows, around the 1.3225 region in the last hour, albeit quickly recovered few pips thereafter. The pair was last seen hovering around the 1.3270 region, down around 1.25% for the day.
Following a modest bearish gap opening on the first day of a new trading week, the pair witnessed some aggressive selling and retreated further from over two-and-half-year highs touched on Friday. The bearish pressure intensified since the early European session in reaction to the incoming Brexit-related headlines, which dampened prospects for an imminent deal.
The EU’s chief Brexit negotiator, Michel Barnier briefed the bloc’s national ambassadors on Monday and reportedly was very downbeat about the possibility of sealing a new trade deal with Britain. Separately, The Sun reported that the UK Prime Minister Boris Johnson is ready to pull out of Brexit talks if the EU refuses to budge from their eleventh-hour demands.
Adding to the pessimism, a UK official reportedly said that Brexit talks are likely to end today if there is no further progress. With less than four weeks left before the end of the Brexit transition period on December, the deadlock certainty seems to have raised the risk of a no-deal Brexit and was seen as one of the key factors that weighed heavily on the sterling.
On the other hand, the US dollar staged a solid rebound amid a slight deterioration in the global risk sentiment on the back of renewed concerns about rising tensions between the world’s two largest economies. This, in turn, further contributed to the GBP/USD pair’s steep intraday fall and took along some short-term trading stops placed near the 1.3300 round-figure mark.
With less than four weeks left before the end of the Brexit transition period on December 31, the deadlock might continue to weigh on the sterling and continue dragging the GBP/USD pair lower. That said, extremely oversold conditions on intraday days helped limit further losses and assisted the pair to find some support near the 1.3225 region, at least for the time being.
Technical levels to watch