- Surging Sterling Short Positions
- Lockdown Restrictions Lifting
- Brexit Uncertainty
The British Pound was on the defensive in early Tuesday trading session after seven consecutive days of gains against the dollar. The bullish momentum appears to be losing steam with the GBP/USD pair looking overstretched.
The GBP/USD pair was down by as much as 0.2% as fears of Brexit uncertainty amidst expectations of slow economic recovery post-COVID-19 continued to rattle the market. Reports that speculators have increased net short positions in the Sterling might explain the renewed weakness in the Pound.
The Pound remains defensive, to hold on gains above $1.2700, after rallying more than 2.8% since the start of the month.
The Pound has remained resilient in recent weeks as plans to ease coronavirus lockdowns continue to fuel optimism about economic recovery. Prime Minister Boris Johnson intends to relax rules that have kept people locked in their house, conversely crippling economic activities.
Reports that the government plans to speed up investment plans to revitalize the embattled economy should also continue to offer support to the British Pound in the market. However, it is the lack of new catalysts to help support the Pound after the recent rally that continues to weigh in on Pound strength in the market.
According to Viraj Patel, macro strategists at Arkera, the Pound could weaken in the coming days given the absence of positive catalysts. Brexit headwinds are another major headwind that could curtail Pound strength conversely affect GBP/USD upswing.
The U.K is under pressure to ink a deal that will avert a hard Brexit that could take a toll on the struggling economy. Johnson has so far hinted at the possibility of agreeing to some EU tariffs in an attempt to win a trade deal and seal BREXIT exit.
The release of Britain’s retail sales should shed light on the economy and conversely influence GBP strength in the market.