The GBP/USD currency pair is facing downside pressure in the NY trading session, and traders are watching closely as it tests a key support structure. This move lower is being driven by a variety of factors, including the US dollar’s strength, Brexit uncertainty, and concerns about the UK economy.
One major driver of the move lower in GBP/USD is the strength of the US dollar. The greenback has been gaining ground against a basket of major currencies in recent weeks, as traders bet on the strength of the US economy and the likelihood of higher interest rates. This has put downward pressure on GBP/USD, which has been struggling to keep up with the pace of the dollar’s gains.
Another factor weighing on the pound is Brexit uncertainty. While the UK officially left the EU in January 2020, negotiations over a trade deal have been ongoing for more than a year. The latest round of talks has been particularly fraught, with both sides accusing the other of being unreasonable. This uncertainty is creating a headwind for the pound, as traders worry about the potential economic fallout of a no-deal Brexit.
Finally, concerns about the UK economy are also contributing to the move lower in GBP/USD. The Bank of England has warned that the UK economy could suffer a severe recession in the wake of the Covid-19 pandemic, and there are fears that the recovery could be slower than expected. This has led to a sell-off in UK stocks and bonds, as investors look for safer places to park their money.
Testing the 1.2020s Support Level
As GBP/USD moves lower, it is approaching a key support level at 1.2020s. If this level gives way, it could trigger a further sell-off in the currency pair, with traders eyeing the 1.1900s and even the 1.1800s as potential downside targets.
Traders should watch out for a break below 1.2020s, as this could signal a shift in the underlying trend for GBP/USD. However, it’s worth noting that the currency pair has already fallen significantly in recent weeks, and there could be some buying interest around these lower levels. Additionally, the Bank of England has indicated that it is open to negative interest rates, which could limit the downside for GBP/USD.
What Traders Should Do
Given the uncertainty surrounding GBP/USD, traders should be cautious about taking large positions in either direction. Those who believe that the currency pair will continue to move lower should consider shorting it, but should be mindful of potential support levels along the way. Conversely, those who believe that GBP/USD has bottomed out may want to consider buying it, but should be prepared for further volatility in the coming days and weeks.
It’s also worth noting that traders should keep an eye on the wider market, as developments in other currencies and asset classes could have an impact on GBP/USD. For example, if there is a sharp sell-off in US stocks, this could trigger a flight to safety that could benefit the US dollar and put further pressure on GBP/USD.
Conclusion
GBP/USD is under pressure in NY trade and may test the key support level at 1.2020s. Traders are watching closely to see if this level gives way, which could trigger a further move lower in the currency pair.
