- GBP / USD was hit by USD strength on Monday and is below 1.3500.
- Rising US bond yields continue to support the USD against other G10 currencies and hurt other risk assets.
Shortly after the market opened on Monday, the GBP/USD It fell below a significant area at 1.3530-1.3540 that had been solid support since the beginning of the year. The downward movement has continued during the European session and at the beginning of the American session, falling below its 21-day moving average, which is currently at 1.3490.
The movement has been mainly driven by the strength of the USD and risk aversion. US President-elect Joe Biden reiterated over the weekend his desire to pass significant additional fiscal stimulus, which has contributed to a further sustained rise in US yields., real and nominal, which helps reduce the USD rate disadvantage. Meanwhile, markets in general are concerned about the Covid-19 outbreak in Europe (they fear that hospitals could be saturated in the UK and Germany) and about relations between the United States and China (the United States indicated that it will improve ties with Taiwan, much to the anger of China, and is reportedly examining more “options” on China) and this is helping the USD as a safe haven.
Therefore, primarily as a result of the above, GBP / USD is moving significantly lower and is currently consolidating between 1.3450 and 1.3500, with losses of just under 0.5% or around 60 pips on the day.
UK fundamental factors
Over the weekend news emerged that the UK government is considering tightening restrictions for Covid-19 and increasing the pressure to stay home after the daily death rate hit a new record over the weekend. Most analysts assume that given the harsh lockdown most of the country has been in since late December and it is likely to stay there for at least a few more weeks, if not months, as healthcare workers rush To vaccinate as many of the population as possible, the first quarter of 2021 is going to be another ugly quarter with likely negative GDP growth. Hence the comments of the UK Chancellor of the Exchequer, Rishi Sunak, that we should wait for the economy to get worse before it gets better.
However, the above news does not appear to have affected the British pound too much on Monday against most G10 non-US dollar currencies, nor do the Alarming weekly UK shopping figures down 27.1% YoY (which, to be fair, makes sense given there was no lockdown in early January 2020). However, for the month, the British pound remains the worst performing G10 currency, falling 1.2% against the US dollar.
On the other hand, the member of the Monetary Policy Committee of the Bank of England, Gertjan Vlieghe, spoke about monetary policy and referred to negative rates. He said that work is still being done on the viability of negative rates and reiterated his view that, based on the experiences of other countries, negative rates can be effective in boosting credit and activity. Furthermore, he reiterated that there is no clear evidence to suggest that negative rates have reduced overall bank profitability. Given that other key members of the bank (such as Governor Andrew Bailey and Chief Economist Andy Haldane) in the recent past apparently set the bar quite high for the implementation of negative rates, most analysts still see the central bank unlikely to follow this path.
For the remainder of the week, GBP investors will turn their attention to Covid-19 statistics, including deaths, hospitalizations and new cases, as well as daily vaccinations, looking for signs of whether the country will tighten its lockdown on next few weeks or if you are on track to meet your vaccination goals. Meanwhile, traders will also be on the lookout for a number of important economic data for November, to be released at 07:00 GMT on Friday, including monthly GDP growth, industrial production and trade figures.
GBP / USD breaks below the descending triangle
He GBP/USD broke below a descending triangle during the Asian session, as well as its 21-day moving average just below 1.3500. If losses spread, the key downside levels to watch out for will be the December 28 lows just above 1.3425, the psychological level of 1.3400 and the 50-day moving average just above 1.3350. To the upside, previous support in the region of 1.3530-1.3540 it should offer decent resistance.
GBP / USD 4 hour chart
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