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Forex Market: GBP/USD plunges over 2% as Britain tightens COVID-19 restrictions, Brexit trade talks continue

GBP/USD plummeted over 2% in early European trade on Monday, while extending losses from last Friday, after the UK government tightened restrictive measures in London and nearby areas in an attempt to curb the spread of a more infectious strain of the coronavirus.

This led countries such as France, Germany, Belgium, Italy, the Netherlands, Canada and Israel to cut travel ties with the UK, including flights suspension.

“The new tougher (COVID-19) restrictions will likely have to remain in place until there has been greater vaccine roll out which could take months,” analysts at MUFG wrote in an investor note.

“At the current juncture, we are working on the assumption that vaccines will still prove effective against the new strain but it is not yet clear. As a result, the economic slowdown will prove deeper and extend further into next year.”

Additionally, British government’s plans to relax COVID-19 restrictions over Christmas were reversed.

Meanwhile, negotiations between Britain and the European Union regarding a post-Brexit trade deal were set to enter their final stages, with only several days remaining before the current transition period expires.

As of 10:11 GMT on Monday GBP/USD was retreating 2.20% to trade at 1.3223, after earlier touching an intraday low of 1.3208, or its weakest level since December 11th (1.3134). The major pair has dropped 0.73% so far in December, following a 2.87% advance in November, or its biggest since July.

In terms of economic calendar, no relevant macroeconomic reports are scheduled for release on Monday.

Bond Yield Spread

The spread between 2-year US and 2-year UK bond yields, which reflects the flow of funds in a short term, equaled 25.8 basis points (0.258%) as of 9:15 GMT on Monday, up from 22.3 basis points on December 18th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 1.3527
R1 – 1.3584
R2 – 1.3646
R3 – 1.3703
R4 – 1.3759

S1 – 1.3465
S2 – 1.3408
S3 – 1.3346
S4 – 1.3283

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