GBP/USD: Fizzles BOE’s Bailey-led gains below 1.3700 amid UK’s covid fears

• GBP/USD eases from eight-day top after posting the heaviest gains in 10 weeks the previous day.
• BOE’s Bailey ruled out negative rates, UK government forced to set up temporary morgues amid virus-led challenges to healthcare system.
• Brexit costs more to UK fisheries, Brussels-London will talk finance cooperation soon.
• US policymaker push for Trump impeachment, President-elect Biden’s stimulus and virus woes eyed.

GBP/USD steps back from the weekly top of 1.3693 to 1.3680, up 0.15% intraday, while heading into London open on Wednesday. The sterling jumped the most since early November the previous day as Bank of England (BOE) Governor Andrew Bailey dropped calls of negative rates. While the initial US dollar weakness helped cable to extend those gains early in Asia, renewed coronavirus (COVID-19) fears and Brexit pessimism weigh on the quote off-late.

In his latest comments, BOE’s Bailey not only muted negative rate chatters but also said he does not, “think covid will cause a structural shift in the UK economy.” Following the news, GBP/USD managed to post the biggest since in more than two months while broad market optimism over US President-elect Joe Biden’s fiscal stimulus dragged the US dollar down and helped extend the upside early on Wednesday.

However, a jump in the covid cases and death tolls in the UK poses a serious challenge to the British health care system. The same could be gauged from the New York Post article saying, “British authorities have had to set up temporary morgues in some areas after local hospital mortuaries ran out of space due to a surge in deaths caused by the COVID-19 pandemic. Britain has reported record levels of deaths and new infections in the last few weeks, fuelled by a new variant of the coronavirus which has caused a surge in cases, especially in London and southeast England.”

Additionally testing the British currency are Brexit worries as Reuters mention British fishermen’s problems with French fishmongers and seafood factories.

It should be noted that the virus woes are also escalating in the US, Germany, Japan and China, which in turn probes the previous risk-on mood and stops the US 10-year Treasury yields around March 2020 top, flashed the previous day.

Looking forward, Brexit talks over UK-EU services, as suggested to take place this week by Bloomberg, will be the key while the US political turmoil and aid package signs can entertain GBP/USD traders as well. It should be noted that the comments from the ECB President Christine Lagarde and the US Consumer Price Index (CPI) for December, expected 1.3% YoY versus 1.2% prior, will also offer extra catalysts to watch.

Technical analysis

Having breached the one-week-old falling trend line, GBP/USD is up for challenging the multi-month high flashed last week around 1.3705. Meanwhile, daily closing below the 21-day SMA level of 1.3555 becomes necessary to recall sellers.