FX.co ★ GBP/USD: pound will face a bumpy road if trade tensions between Britain and the EU increase

The British currency lost more than 1% against the US dollar on Monday and continued to decline on Tuesday amid growing pessimistic sentiment regarding upcoming trade negotiations between the United Kingdom and the European Union.

The GBP / USD pair lowered to 0.4% from 1.2942, reaching its lowest level since December 25.

"The market is frightened by the continuous distance between London and Brussels and is concerned that the same small compromise is possible in such a short period of time," strategists told Rabobank.

"Achieving a trade agreement between the parties seems rather ambitious and could entail risks for the UK economy (its assets, as well as the pound sterling) during the year," RBC Capital Markets analysts said.

Today, the GBP/USD pair was able to recover from six-week lows and rise above the level of 1.3050.

The pound was supported by the positive UK PMI business activity report for January. Last month, the indicator rose to 53.9 points compared to 52.9 points recorded in December.

Recent US Commodity Futures Trading Commission data show that bullish speculative pound rates were moderate for a week (until January 28), but remained generally unchanged.

The sale of the British currency that took place this week implies that these positions are closing and that the pound may continue to decline.

"We expect the British currency to continue to decline (to $ 1.2820), as macroeconomic expectations could worsen if trading uncertainty increases and the elimination of speculative long positions continues," said Jeremy Stretch of the Canadian Imperial Bank of Commerce, adding that there are those who can buy GBP / USD in the fall.

"Market participants have already begun to express concern about the risks associated with Britain leaving the EU without a deal," said Lee Hardman of MUFG Bank.

Apparently, the big risk premium for Brexit is back to the value of the pound.

"In the coming weeks or months, GBP / USD will drop to 1.28 or lower, because good news for the British currency may not appear immediately, but only over a longer period," says Keith Jax, Societe Generale specialist.

"The pound will face a bumpy road if trade tensions between Foggy Albion and the EU increase. British Prime Minister Boris Johnson made it clear that he would rather avoid a trade deal than bring the country in line with EU rules. As long as the negotiations remain tense and there are no signs of a compromise between the two sides, we recommend selling GBP / USD on rises above 1.32" UniCredit experts said.