British pound falls as UK faces new Covid strain, deadlock on Brexit trade talks

FAN Editor

Britain’s Prime Minister Boris Johnson gestures as he hosts a virtual press conference inside 10 Downing Street in central London on December 19, 2020.

TOBY MELVILLE | POOL | AFP via Getty Images

The British pound took a beating on Monday as the U.K. faces concerns over a new coronavirus strain as well as uncertainty stemming from Brexit trade deal negotiations.

Over the weekend, the U.K. said it had identified a new strain of Covid-19 which spreads more quickly than previous variants. Following that announcement, other nations said they would be temporarily restricting travel from the U.K. in efforts to prevent the new strain from entering their borders. The British government has already ordered an even stricter Covid lockdown in London ahead of Christmas.

As of 06:34 GMT, the British pound fell more than 1% to $1.3349, as compared with levels around $1.36 seen last week. Meanwhile, the euro also declined to $1.2184 after breaching the $1.225 level last week.

The currencies have recently fluctuated around headlines related to Brexit trade deal talks. Britain and the European Union remain in a deadlock as a Dec. 31 deadline looms, with disputes over issues such as fisheries plaguing negotiations.

“We’re quite bullish … on sterling for the next few months.”

Gareth Berry

Managing director and foreign exchange and rates strategist, Macquarie Group

Analysts remain bullish

Still, analysts told CNBC on Monday that they remain bullish on the pound going into 2021 despite headwinds the currency faces.

“We should expect some volatility for the pound and what we’re seeing this morning is reflective of that,” Rodrigo Catril, senior currency strategist at National Australia Bank (NAB), told CNBC’s “Squawk Box Asia” on Monday morning.

A Brexit trade deal before the end of the year is “still more likely than not,” Catril said, adding that “it makes sense and politically it will be difficult … to argue that the deal has broken down … because of (fisheries)” due to the industry’s relatively small magnitude in the overall economic deal being discussed.

Macquarie Group’s Gareth Berry also told CNBC’s “Street Signs Asia” on Monday that he was “hoping for a positive resolution” on Brexit talks by the end of this week.

“That should lead to a deal that all sides can live with and that can ultimately be ratified the following week in time for that Dec. 31 deadline,” said Berry, who is managing director and foreign exchange and rates strategist at Macquarie. “Sterling should love that, and that’s one reason why we’re quite bullish … on sterling for the next few months.”

As for the virus, NAB’s Catril said its near-term economic impact is “significant” though expectations of stimulus and vaccine rollouts over the coming months are encouraging markets to “see the positive side over the medium term.”

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