- Fading hopes for a last-minute Brexit deal prompted some aggressive selling around GBP/USD.
- A modest USD short-covering bounce contributed to the ongoing pullback from multi-year tops.
The intraday selling around the British pound picked paced in the last hour and dragged the GBP/USD pair back below the key 1.3500 psychological mark, or fresh session lows.
Having struggled to find acceptance above the 1.3600 mark on Thursday, the pair witnessed some long-unwinding trade on the last day of the week amid a flurry of Brexit-related headlines. British Prime Minister Boris Johnson suppressed hopes for a last-minute Brexit deal and said that the most likely outcome was for the UK to leave the EU without a deal.
Johnson warned that it was likely a deal wouldn’t be reached unless the EU shifts its position substantially over key sticking issues, including fishing quotas. The European President Ursula von der Leyen acknowledged the differences and said bridging the divide on some areas, especially fisheries, would be very challenging.
Separately, the EU’s chief negotiator, Michel Barnier said on Friday there is a chance of getting a deal but the path to such an agreement is very narrow. With less than two weeks left before the Brexit transition period ends on December 31, the not so optimistic comments took its toll on the sterling and turned out to be a key factor exerting pressure on the GBP/USD pair.
On the other hand, the lack of progress on additional US fiscal stimulus measures prompted some US dollar short-covering move. This, in turn, added to the intraday selling bias and forced the GBP/USD pair to snap four consecutive days of the winning streak. The pair has now erased the previous day’s positive move to the highest level since May 2018.
Meanwhile, the fact that Brexit talks will go down to the wire, investors might refrain from placing aggressive bets. This makes it prudent to wait for some strong follow-through selling before confirming that the GBP/USD pair has topped out in the near-term and positioning for any further slide amid absent relevant market moving economic releases from the US.
Technical levels to watch
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