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  • GBP/USD holds steady in holiday markets awaiting 202 Brexit noise.
  • Strong downside potential for GBP if trade  talks are difficult between UK/EU.

GBP/USD is currently trading at 1.2991 having been kept in a tight 1.2986/94 range in thin market conditions while we await UK PM Johnson and his Brexit team to return from recess and for trade negotiations to drive price action.  

GBP/USD is a touch below the 1.30 handle following a pre-Xmas correction from the depths of the 1.29 handle which followed the post-hard Brexit sentiment drop from the 1.35 handle mid-month.

On Brexit, analysts at Rabobank argued that “the electorate may have given PM Johnson a majority in the House of Commons on the hope that he could finally put  Brexit  to bed, but trade negotiations between the UK and the EU will dominate much of the domestic political landscape.”

The analysts added that should “talks are difficult a ‘no deal’  Brexit  would still be a prospect for the UK at the end of 2020. This could bring strong downside potential for GBP and could also act as a drag on the EUR.”

BoE to revisit a rate cut should Brexit trade negotiations point to a hard Brexit

Meanwhile, the Bank of England  left rates unchanged in a 7-2 vote earlier this month and the policy guidance was identical to that of September. The core of the MPC is still looking for growth to pick up to above potential in the first half of 2020 as political and trade uncertainty abate. If that fails to materialise, then odds of a rate cut will rise and also weigh on the pound.  

GBP/USD levels

“Acceptance below the  1.2800  round-figure mark will reinforce the bearish scenario and pave the way for the resumption of the downward trajectory,” Haresh  Menghani, editor at FXStreet, wrote in the  GBP/USD Price Forecast 2020: Pound may continue to fall on hard Brexit deadline  – and,

The pair then could accelerate the slide further towards challenging the  1.2500  handle before eventually dropping to 2019 monthly closing lows support near the  1.2160  horizontal zone. Any subsequent slide, however, might continue to attract some buying interest near the 1.20 handle, which if broken will be seen as the opening of a new chapter in the GBP downfall.