- GBP/USD is consolidating and bracing for the next development in Brexit talks.
- Coronavirus case continues to threaten risk assets, weighing on the pound.
GBP/USD is trading at 1.3238 having travelled between a low of 1.3195 and 1.3269, down some 0.20% at the time of writing.
Sterling fell on Thursday against a rebounding dollar as investors turned more cautious about the rise of global coronavirus cases and the likelihood of the UK and European Union reaching a post-Brexit trade deal before the Dec. 31 deadline.
As for positioning, net GBP short positions surged last week back to levels held in early October ahead of the latest lockdown in England and the November BoE policy meeting.
So far, there has been no mention of negative rates from the MPC which has given some support for the pound, but Brexit has come back into focus.
Direct talks have been suspended after a member of the EU team tested positive for COVID19, although investors have become more optimistic about the chance of a deal in recent days.
However, reports in early Asia the prior day that EU leaders will demand the European Commission to publish plans for what will happen if there is no deal has been a weight for sterling.
Additionally, risk aversion in the stock markets has been pressuring risk-fx, including the pound, as investors grow more concerned over rising cases of global coronavirus cases which have put some of the safe-haven US dollar demand back into play.
Still, there is room for a relief rally for GBP if a deal is Brexit trade deal is struck, analysts at Rabobank explained.
”That said, the likelihood that the deal could be skeleton thin and leave several sectors exposed is likely to reduce upside potential for the pound,” the analysts, however, have warned.
”Even on a deal, confusion over paperwork and queues of lorries at the ports are expected to be a feature of the post Brexit UK landscape in January and potentially beyond. Not only is this likely to have negative consequences for the economy but it is unlikely to do the Prime Minister’s popularity any favours.
Overall, with Brexit talks in their final phase, there is plenty of room for volatility in the coming days.
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