Pound rebounds to 1.35 in thin trading

In the Tuesday session, the British pound has reversed directions and moved higher. Currently, the pair is trading at 1.3503, up 0.40% on the day.

Pound volatility continues

The difficult and often acrimonious negotiations over the UK’s departure from the EU are finally over. The talks went down to the wire, as the UK formally departs the bloc at midnite on December 31st. The UK had been a member of the EU for almost 50 years, so the exercise feels like a divorce that the sides finally found enough common ground to break up and move on. The fact that an agreement was reached is certainly a reason for relief on both sides of the English Channel. The deal will establish the new trading relationship between the two sides and prevent the imposition of WTO rules, which would have meant tariffs and customs on goods moving between the UK and the EU.

At the same time, there are concerns about what will happen come January 1st. There are doomsday scenarios of shortages of medicines and fresh food and thousand of trucks stuck in a web of bureaucracy on both sides of the Channel. These fears have only intensified after the scene of some 6,000 trucks trapped in Dover last week when France closed its border due to a mutant strand of Covid-19.

It is true that there will be bureaucratic hurdles on commercial movement between the EU and the UK in the post-Brexit era, but it’s unlikely that the new regulations will paralyse trade or lead to shortages. Still, these concerns have weighed on the British pound, as GBP/USD fell close to 1 percent on Monday. The good news for the pound is that with so much uncertainty about a no-deal Brexit, the fact that an agreement was reached in time removed a significant downside risk to the currency. Still, talk of sterling climbing to 1.40 if a deal was reached appears premature.

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GBP/USD Technical

• GBP/USD faces weak resistance at 1.3543. The next resistance line is at 1.3633
• There is support at 1.3397. Below, we find support at 1.3341
• The pair crossed above the 10-day MA line in the European session

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