GBP/USD: New covid strain bans sterling from surging, Boris’ actions, Brexit eyed
A dry-run for Brexit? British supply chains are distressed by a sweep of flight bans to and from the UK – and especially by the freight shuttering imposed by France. European and non-European countries have acted rapidly – and arguably with panic – to prevent the spread of the new coronavirus strain.
The VIU-202012/01 variant is responsible for the quick spread of the disease in London and Southeast England, causing Prime Minister Boris Johnson to announce new restrictions of the are – Tier 4, a new level created over the weekend. In a special Saturday address to the nation, Johnson said that the mutation is 70% more transmissible and raises the Reproduction rate (R) by around 0.4%.
However, there is no evidence that this mutation – which is normal with viruses – is more lethal nor vaccine-resistant. Health Secretary Matt Hancock, which announced the about the variant early last week in parliament, added to the gloomy mood by saying on Sunday that it is “out of control.”
It is also essential to note that Britain is well ahead of other countries in genetic sequencing. The UK already noted that a spread in the summer originated in Spain and that Danish minks are responsible for another break in the autumn. The variant is likely spread across the world – without it being tracked.
Following the potential strain on British supply chains – just before Christmas, the PM convenes his Cobra cabinet used for emergency situations. Will he announce special measures to alleviate the pressure on British ports? Will other areas of the country enter severe lockdown levels?
The PM’s decisions could go both ways for the pound.
The virus news took over headlines, which had been dominant in shaping sterling trading for long weeks. With ten days to go until the transition period expires, there is still no white smoke coming out of the negotiation rooms.
Fishery industry heads in European coastal states raised concerns that the bloc would cede substantial ground to the UK. The fate of fish remains the main stumbling block, but state aid has yet to be resolved as well.
Negotiators missed a toothless Sunday deadline set by the European parliament and deliberations continue in full force in Brussels. Are current disruptions due to the virus strain going to push the UK to concessions? That is yet to be seen.
What is clearer, is that a Brexit breakthrough would lift the pound from the abyss.
Cable’s downfall could have been worse had it not been for another deal across the pond. Democrats and Republicans resolved the main sticking points and are in the final throes of drafting a $900 billion stimulus deal.
“More help is on the way” announced Senate Majority Leader Mitch McConnell. Investors expect the incoming Joe Biden administration to provide more federal support in early 2021.
The finalizing of the accord is due late on Monday. American medical teams are set to begin administering Moderna’s COVID-19 vaccine on Monday, joining the Pfizer/BioNTech jab which Britain is also deploying.
All in all, the virus strain and the travel choke stand out, with Brexit also playing a significant role in moving the pound.
GBP/USD Technical Analysis
Pound/dollar has fallen sharply, piercing through the 50 and 100 Simple Moving Averages on the four-hour and hitting the 200 SMA at the time of writing. The Relative Strength Index is nearing the 30 level – oversold conditions – not long after flirting with overbought territory last week.
All in all, bears are gaining ground but may be overplaying their hand.
Support awaits at 1.3280, a swing low from last week, followed by 1.3225, a trough in early December. The monthly low awaits at 1.3135.
Some resistance awaits at 1.3325, which capped cable in mid-December. It is followed by 1.34, a top seen in November and where the 50 SMA hits the price. Further above, 1.3450 and 1.3535 await GBP/USD.