GBP/USD crashes 1.20% amid Brexit and new covid strain woes

Written by: Crispus Nyaga
December 21, 2020
  • The GBP/USD pair dropped sharply as the UK and the EU made no progress on Brexit during the weekend.
  • With less than ten days to go, there is a possibility that the two sides will divorce without a deal.
  • The pair also reacted to the rising number of Covid cases in the UK.

The GBP/USD crashed by more than 1.20% in early trading as forex investors reacted to the new lockdowns in the UK and the lack of any meaningful progress on Brexit. The pair is trading at 1.3352, which is substantially lower than last week’s high of 1.3625.

GBP/USD 45-minute chart

The UK faces new lockdown

The sterling is falling as traders react to the latest Covid news from the UK. This is after the government announced that England would move to tier-4 lockdown as the number of Covid cases continued to rise. 

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Yesterday, the country confirmed more than 27,000 cases, bringing the total number of infections to more than 2 million. Worse, the country has confirmed a new strain of the virus that spreads 70% faster than the earlier variant. 

As a result, many European countries like Germany, France, Italy, and Spain have banned any travel to and from the country. There is still no evidence that the new strain will be able to avoid the vaccine.

Economists believe that this virus and the lockdowns will make it relatively difficult for the already-embattled UK economy. For one, in recent months, the government has boosted its debt by more than £200 billion, pushing the total public debt to more than £2 trillion.

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No Brexit progress

The GBP/USD is also falling because the UK and the EU did not make any progress on Brexit even as time continues to run. The two sides have less than 10 days to reach an agreement that will prevent a no-deal Brexit.

The biggest issues right now are about fisheries, fair-trade rules, and governance of the deal. On fisheries, the UK wants to have total control on its waters while on trade, it wants to set its own regulations. 

In statements over the weekend, officials from the UK asked the EU to drop unreasonable demands. Matt Hancock, the British health minister said:

“We want these talks to reach a positive conclusion, of course, I want a deal, I think everybody wants a deal. Unfortunately, the EU has put in some unreasonable demands. … I am sure a deal can be done but obviously, it needs movement on the EU side.”

GBP/USD technical outlook

GBP/USD technical chart

The daily chart shows that the GBP/USD has fallen substantially in the past few days. It has also formed an ascending channel that’s shown in red. At the current price, the pair is between this channel. 

Also, the price is on the same level as the 15-day and 25-day exponential moving average while the Relative Strength Index has continued to drop. Therefore, in the near term, the downward trend will continue as bears aim for the lower side of the channel at 1.3200.