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Jan 05 - 11:55 AM

GBP/USD - COMMENT-Sterling Back On Firm Footing After Lockdown Retreat

By Paul Spirgel  —  Jan 05 - 10:52 AM

Sterling shrugged off its latest UK lockdown-related slide, rising 0.21% to 1.3590, but faced a daunting road aheadnL1N2JG0X0.

Though cable notched a multi-year high above 1.3700 on Monday and should benefit from the end of Brexit uncertainty, the relentless spread of COVID is pressuring front-end UK rates lower, undermining sterling support.

UK short-sterling contracts 0#FSS:project UK rates to slip below zero and reach -10bps by December 2021.

Should COVID cases continue to rise, in the UK and elsewhere, the diminished global growth outlook could put further pressure on rates, potentially forcing GBP/USD lower.

GBP/USD bulls remain in control for now, but a break below the 21-day moving average at 1.3479 would weaken sterling's bullish structure, opening the way for a test of 1.3419, the 50% Fibo of the December-January, 1.3135-1.3703, rise.

Below 1.3419 the daily cloud top at 1.3213 and Dec. 11 low at 1.3135 are viable targets.

Progress toward halting the spread of COVID couldallow GBP/USD to resume its ascent, putting the May 2018 high by 1.3792 and the April 27, 2018 high by 1.4030 in sharper focus.
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Source:
Refinitiv IFR Research/Market Commentary

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