Pound dips on Bailey’s comments

The British pound has posted losses on Wednesday, erasing the gains seen in the Tuesday session. Currently, GBP/USD is trading at 1.3578, down 0.36%.  

It was an excellent end to 2020 for the pound, which gained 2.5% against the sad-sack dollar in the month of December. The pound has been jumpy early in the new year, although it’s difficult to see any trends, with the currency swinging in both directions.

In the weeks leading up to the Brexit agreement last month, there was plenty of uncertainty surrounding sterling, with many analysts predicting huge volatility for the pound based on whether the UK would leave the EU with a deal in place or not. There was talk of GBP/USD jumping to 1.40 if a deal was reached. However, given that the markets were full in a Brexit deal, the fact that a no-deal scenario was averted at the last minute did not propel the pound past 1.40. Still, the specter of a no-deal Brexit, which has been hanging in the air for months, has been finally removed, and with it a downside risk to the pound.

Even with an agreement in place, the ramifications of Brexit will be felt in the weeks and months to come, and stark facts such as the UK economy contracting due to Brexit could be bearish for the pound. The markets received a taste of this on Wednesday, as BoE Governor Andrew Bailey told a parliamentary committee that the BoE estimated that some 5,000-7,000 financial service jobs had already shifted to the EU from the UK due to Brexit. Additional comments like these about Brexit from officials in high places could unnerve investors and send the pound lower.

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GBP/USD Technical

• GBP/USD faces resistance at 1.3659. Close by, there is resistance at 1.3693
• 1.3573 is providing support. Below, there is support at 1.3521
• The pair is putting downward pressure on the 10-day MA line

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