Sunday, January 24

GBP/USD trims weekly losses and consolidates around 1.2950

  • GBP/USD bounces up from 1.2880 and consolidates around 1.2950.
  • The pound weakened against a stronger dollar amid COVID-19 fears.
  • BoE, Brexit and US elections will be the main drivers next week.

The pound sterling has returned above 1.2900 on Friday after bouncing from 10-day lows at 1.2880, to consolidate around 1.2950. The pair has settled halfway through the last weeks’ trading range, ahead of an eventful week.

BoE, coronavirus and US elections in focus next week

Cable lost ground this week, weighed by the dismal risk appetite with the second COVID-19 wave spreading through Europe and the market bracing for a contested US election next week. In this backdrop, investors have remained away from risk, which has reflected on a strong USD recovery.

With Germany and France having introduced lockdowns and regional confinements in Spain, the pressure on the UK government is mounting to implement stricter restrictions. A second lockdown is not been priced and might trigger a strong selling pressure on the GBP.

The event of the week, however, will be Bank of England’s monetary policy meeting, due next Thursday. Some analysts have anticipated an increase of the quantitative easing programme, which would have a negative impact on the pound, although the biggest shock would be the introduction of negative interest rates. This possibility, albeit unlikely, might send the pound tumbling.

Beyond that, the outcome of the US elections will undoubtedly trigger relevant price movements. The most probable outcome, Biden’s victory, is expected to have a negative pressure on the US dollar, anticipating the approval of a large stimulus package to support economic recovery. A contested election without a clear winner, however, might boost safe-haven demand and push the US dollar higher.

Technical levels to watch

Credit: FX Street

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