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  • Writer's pictureMike Paterson

Brexit and COVID combo send Pound sharply lower

Monday 21 December 2020

Brexit talks have reached another impasse with yesterday's deadline producing nothing but posturing on both sides and a promised to try and continue to find a solution before 31 December, or even Xmas. All this amid France and lots of other countries imposing a travel ban to/from the UK in the wake of the latest COVID escalation and increased restrictions. The ban by France has also closed the key port of Dover for 48 hours severly affecting a major route for goods into the UK.

Strange times around the globe have now got even stranger in the UK since the introduction of Tier 4 yesterday as a new variant of the corona virus creates further havoc to the ecomomy and society as a whole with more shops closed and Xmas/social plans being severely restricted for Tier 4 dwellers.

Cue the Pound in rapid decline and still falling as I type with the FTSE down 2% as well. Global risk sentiment generally has also taken a softer tone with equities and oil both lower and that has produced some level of USD demand too.

Thin liquidity in markets this week as we wind down to Xmas and many trading rooms at less than full capacity adding to the volatility/fragility.

GBPUSD duly gapped lower to 1.3420 on the Asia opening and has since posted lows of 1.3210 this morning. Let's see now whether both/either the Brexit uncertainty and latest COVID restrictions are priced into this latest correction.EURGBP opened higher in Asia at 0.9100 (GBPEUR down to 1.0990) and since made a steady march onto 0.92018 ( 1.0848). GBPJPY found good sell interest at 140.00 on Friday and now posted lows of 137.30 on the softer risk/GBP double whammy.

Patience continues to be a virtue and rally-selling in GBPUSD bringing reward again but entry level key as always with the falls once again outpacing the rallies. Definitely will see some dip demand as the negatives get factored in so equally may be a case for going long in the dips too but not my preference. Brexit still the large elephant in the room and now COVID once again stealing headlines too, and some.

USDJPY found support below 103.20 but equally finding sellers above 103.60 with JPY demand notable on the softer risk tones.EURJPY remains underpinned below 126.00 but now 126.60 prioviding a decent cap amid softer risk plays.EURUSD failed above 1.2260 helped by thosel large 1.2250 option expiries I warned about and now back down through 1.2200 on the firmer USD/softer risk combo. We have large option expiries today at 1.2150-60 that should help contain further falls. USDCHF held 0.8825-30 again as USD demand returns and EURCHF remains underpinned with the SNB still ever watchful.

AUDUSD failed above at 0.7640 and has had its own tumble to test 0.7500 this morning as USD demand returns and with AUDJPY selling notable. USDCAD found a base around 1.2750 and been enjoying the USD demand/softer oil combo to post 1.2910 as type.

Markets are ever-fickle so don't forget to contact me if there's areas that you might need some further help with.

Let's continue to be careful out there in all things. Staying safe must be our main priority still.

Interbank rates: 08.42 GMT

GBPUSD 1.3273

EURUSD 1.2220

EURGBP 0.9206

GBPEUR 1.0860

GBPAUD 1.7595

GBPCAD 1.7087

GBPJPY 137.38

GBPZAR 19.6550

GBPHKD 10.2572

USDJPY 103.52

USDZAR 14.8678

EURJPY 126.48

EURCHF 1.0808

EURHKD 9.4448

AUDUSD 0.7542

USDCAD 1.2874

USDCHF 0.8845

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