FX.co ★ Forming potential is challenging for the pound

The pound is under pressure from different negative factors such as COVID-19 and Brexit. Both issues cause the tension level to increase and create high risk for the further decline of the indicated currency.

Yesterday, the British currency declined once again – from the previous level 1.3382 to the level of 1.3333. The moderate growth in the US dollar and increased risks of no-deal Brexit contributed to this. Analysts believe that there is a high probability that the UK will withdraw from the European Union without an enough trade deal.

Uncertainty about the adoption of a mutually beneficial trade agreement is contributing to the growing tension. Throughout this year, negotiations between London and Brussels on this issue have repeatedly stalled. At the moment, the situation is far from positive, but glimpses of compromise have already appeared. The Bank of England, which calls for a trade deal with the European Union, exerted pressure on the British authorities. Economic consequences should be recalled in this event. According to the regulator, a "hard" Brexit is more destructive for the British economy than the COVID-19 pandemic.

The current situation does not allow the pound to recover, continuously affecting the dynamics in the negative way. Therefore, analysts say that the pound cannot manage to enter the upward trend. Today, the GBP/USD pair was trading near the range of 1.3372-1.3373, but failing to rise higher. Experts emphasize that negative factors slow down the pound's progress.

It should be recalled that there is a transitional period in the UK until December 31, 2020. After that, the trade deal is expected to be concluded. However, the parties have not yet been able to agree on the terms of trade, which will be considered in 2021. On Wednesday, November 25, Ursula von der Leyen, the head of the European Commission, announced the transition to a new stage in relations with London from next year. The market and the pound were optimistic about this, but the final decision on this issue is still hanging.

Analysts believe that such uncertainty will persist over the last five weeks remaining until 2021, and trade negotiations with Brussels will continue the same way. Therefore, Societe Generale's current strategies note that it is likely that the pound's dynamics will be affected by this, which may collapse to the critical level of 1.2000. Nevertheless, they do not rule out that the pound may rise to the level of 1.4000, if the trade deal will end up successfully.