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  • GBP/USD failed to preserve intraday gains to fresh multi-year tops, around the 1.3700 mark.
  • Concerns about a surge in COVID-19 cases across the UK was seen weighing on the sterling.
  • The prevalent bearish sentiment around the USD should help limit the downside for the pair.

The GBP/USD pair retreated around 90 pips from multi-year tops and dropped to fresh daily lows, around the 1.3615 region during the mid-European session.

The pair struggled to capitalize on its intraday positive move, instead faced rejection near the 1.3700 mark amid concerns about the exclusion of the UK services sector from the Brexit agreement. This comes amid an unprecedented level of COVID-19 infection in the UK, which, in turn, was seen as a key factor weighing on the British pound.

British Prime Minister Boris Johnson warned on Sunday that tougher restrictions were likely on the way to curb the continuous surge in new cases. Adding to this, the UK Health Secretary Matt Hancock said that he was incredibly worried about the South African variant of the coronavirus, which overshadowed the optimism over the rollout of vaccines.

Meanwhile, the downside is likely to remain cushioned, at least for the time being, in the wake of the prevailing bearish sentiment surrounding the US dollar. The likelihood of more US fiscal stimulus, along with speculation that the Fed will keep rates lower for a longer period continued undermining the greenback on the first day of 2021.

Hence, the key focus will remain on this week’s release of the latest FOMC monetary policy meeting minutes on Wednesday. In the meantime, developments surrounding the coronavirus saga will continue to play a dominant role in influencing the GBP/USD pair. Traders might also take cues from Monday’s release of the final US Manufacturing PMI.

Technical levels to watch