GBP/USD retreats ahead of UK retail sales as Brexit concerns remain

The GBP/USD pulled back in overnight trading as Brexit worries returned with the December 31st deadline fast approaching. The pair has dropped from the multi-year high of 1.3627 to 1.3530.

Brexit worries return

In a statement overnight, Sir David Frost, the chief UK negotiator said that progress “seemed blocked” as divisions among key issues escalated. He said that Boris Johnson had held a phone call with Ursula von der Leyen, the EU president.

The situation in our talks with the EU is very serious tonight. Progress seems blocked and time is running out. The Prime Minister @BorisJohnson set out his concerns about the state of play to Commission President @vonderleyen this evening. https://t.co/wTOGrvXbWT

— David Frost (@DavidGHFrost) December 17, 2020

In an accompanying note, he noted that fisheries were the main issues. He said that the country would not accept a situation where it did not have full rights to control access to its waters. The statement added:

“The EU’s position in this area was simply not reasonable and if there was to be an agreement it needed to shift significantly.”

Still, to a large extent, the UK has already lost the Brexit debate. For one, according to EY, London has already lost more than 10,000 high-paying financial jobs since it voted for Brexit. More than £1.2 trillion worth of assets has already left the city. Just recently, banks like JP Morgan and Goldman Sachs announced that they would shift their assets to Brussels.

Meanwhile, economists believe that more than 300,000 jobs will be lost if the country leaves without a deal. The economy will also drop by about 2% while the British pound is expected to lose value by about 20%.

UK retail sales next

The new Brexit worries come a day after the Bank of England (BOE) delivered its final interest rate decision of the year. The bank, as expected, left interest rate and quantitative easing policies unchanged.

Later today, the GBP/USD will react to the country’s November retail sales numbers that will come out at 07:00 GMT. Economists at most forex brokers expect the data to show that sales slumped in November as the country moved back to a lockdown. 

Precisely, they see the headline retail sales falling by 4.2% in November after rising by 1.3% in the previous month. That will lead to an annualised increase of 2.8%. Similarly, they see the core retail sales falling by 3.3% leading to an annualised increase of 4.1%.

GBP/USD technical outlook

The GBP/USD pair dropped to an intraday low of 1.3530, which is lower than yesterday’s high of 1.3627. On the hourly chart, the 28-period and 14-period exponential moving averages have made a bearish reversal pattern. 

Similarly, the Relative Strength Index (RSI) has moved from the overbought level of 70 to the current 40. Therefore, the pair will likely continue falling as bears aim for the next support at 1.3530.