GBP/USD capped below 1.2075, treading water at around 1.2050

The Pound remains unable to capitalize on a softer US Dollar on the last trading day of the year. The pair has failed to break above 1.2075 and keeps moving within a 60-pip range on both sides of 1.2050 for the second consecutive day.

Concerns about China and Ukraine and BoE’s dovishness weigh on the GBP

Concerns about the fast expansion of coronavirus cases in China have kept risk appetite in check over the last half of the week. Reports from independent sources talking about 9,000 daily deaths contrast with the information by official institutions reporting 5,000 new infections and only one death on Friday.

These contradictions have prompted several countries to impose mandatory COVID-19 tests on all arrivals from China and are casting doubts about the strong economic recovery in the Asian dragon, triggered by the end of the Zero-COVID policy.

Beyond that, the Russian army keeps heavily shelling Kyiv and other Ukrainian cities for the second consecutive day after the Kremlin’s refusal to accept Zelenski’s peace plan.  The rising tension in the eastern-European country is weighing on risk appetite further.

In the UK, the grim economic perspectives forced the Bank of England to lift its foot from the rate-hike pedal in December. This was taken by the markets as a signal of a slowdown in the tightening cycle, which has added negative pressure on the GBP

Political uncertainty and a weak economy have crushed the Pound in 2022

The Pound Sterling is set to close the year with a decline of about 11% in its worst yearly performance since 2016 when the Brexit party won the referendum by a tiny margin.

The political uncertainty on Boris Jonson’s last days and Liz Truss’ tax fiasco battered the GBP earlier this year. The pair however bounced up steadily, cutting losses by about 20% as the market welcomed the election of Rishi Sunak as the new Prime Minister in late October.

Against this backdrop, economic indicators have confirmed the strong impact of Brexit. UK post-pandemic recovery has lagged behind the world’s major economies, with the GDP still 0.4% below the last quarter of 2019 and price inflation out of control, which is turning UK citizens‘ cost of living crisis into a nightmare and posing a serious challenge to the Bank of England.

Technical levels to watch