GBPUSD at its highest level in several years, but risks remain

Last Updated on January 4, 2021

GBPUSD Outlook: 22nd December 2020

GBPUSD rose on the first trading day of 2021, surpassing the level of $ 1.37 for the first time since May 2018, as online trading investors feel relieved of Britain’s exit from the European Union with a trade deal.

GBPUSD ended 2020 at its highest level since April 2018, this performance was due to the weakness of the US dollar and optimism about the official exit of Britain from the European Union and the end of its decades-long membership, but the United Kingdom faces great challenges, especially with regard to the increasing number of cases of Coronavirus.

The GBPUSD pair rose after the UK leaves the European Union

Britain completed its divorce from the European Union on Thursday, five years after the country voted to secede from the united bloc.

While the United Kingdom exited the bloc in March last year, nothing important changed as the two sides attempted to reach a post-Brexit trade agreement, after months of intense negotiations they managed to reach a Brexit deal on December 24th.

Chart of GBPUSD - 5th January 2021

The deal means that the two sides will not impose tariffs and set up a physical barrier, instead, they will continue to trade as usual albeit with many restrictions, and the two sides will also continue negotiations on key issues such as financial sector guidelines.

The UK economy faces big risks

However, the UK faces a difficult road according to analysts, with many companies already announcing that they will move to other member states of the European Union.

Banks that play a significant role in the UK have already transferred more than $ 1.2 trillion to countries like Germany and France.

More than that, the country faces great challenges regarding the Coronavirus pandemic, and while vaccination operations have already begun, the number of cases continued to rise due to the new rapidly spreading strain of the virus, in fact, “Boris Johnson” said in a statement that further lockdown measures are still possible, As such, analysts believe this is the country’s biggest challenge.

In bad news for the pound sterling, cases of Covid-19 virus in Britain are at record levels, Prime Minister “Boris Johnson” said on Sunday that tighter lockdown restrictions are likely on the way.

There is more sterling momentum pushing further ahead in the near term, but risks are also rising as fundamentals reassert them and the consequences of the coronavirus outweigh the short-term positives of the Brexit deal.

UK forex Analysts forecast that negative interest rates are likely to remain a possibility for the UK, because although Brexit is avoided without a deal, the high rates of virus infection will have an impact on BoE policies, and some are likely negative rates by May 2021.

Professional Trader and Analyst, economist in Financial and Forex marketsince 2004.holds an MBA from the American University in Egypt. Mohammed works as an economic writer and technical & fundamental analyst for many international Forex and financial trading companies in both English and Arabic on a daily basis.
Mohammed Abdelkhalik

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