GBP/USD: Risk-aversion drives traders from the sterling

Sterling has lost all of its summer bounce and is threatening to break back into its immediate post-pandemic range of 1.2300-1.2700. Volatility has been compounded by several fundamental uncertainties. COVID-19 lockdowns, Brexit and resurgent dollar have battered the pound, as FXStreet’s analyst Joseph Trevisani notes.

Key quotes

“The return of limited economic closures in the UK from rising COVID-19 cases and the rancorous Brexit talks are the major domestic weights on the pound. Neither is headed for a quick solution and they will continue to exert negative pressure.”

“The rapid descent from the September high, sterling closed at 1.3385 on the 1st of the month, and the sharp two-figure drop at 1.3000, once support now tested resistance, argues for a lower pound.”

“Fundamentally the UK economy has largely recovered from the lockdowns but the currency is not trading on its economic prowess either vis-a-vis the dollar or the euro, but on the assessment for future progress. The reversion to closures to control the pandemic and Brexit talks will undermine any improvement in the economy.”

“The progression of sharp drops followed by a new resistance line at the base of the decline is typical for a declining currency. Though the area below 1.2700 has a full complement of support lines from five months of trading that should not deter entry.”