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Lockdown measures hit the Pound - Market Update 21/12/2020

Updated: Nov 10, 2021

Prime Minister Boris Johnson

Boris Johnson announced over the weekend a new tier in the UK with growing concern about a new strain of Covid-19 which scientists say is 70% more contagious than existing strains. This prompted European countries and Canada to ban travel from the UK with more countries expected to follow throughout the next few days. This a blow to UK's effort to fight Covid-19 with government hoping that they had turned a corner. The increased lockdown and worry about the new strain have hit the Pound in the Asian trading sessions, with GBP/USD trading 1.16% down from the open of 1.3530. We're already start to see this news take effect in the stock market with the pre market FTSE down 1% as of writing. Brexit negotiations again failed to reach an agreement over the weekend with the talks now continuing into Monday. A spokesperson from the UK government has said that there will not be a deal reached unless there is a 'substantial' shift from Brussels. There is still time for the UK to get a deal with the EU but that time is fast running out as the deadline of the 31st of December approaches, although it's yet to be seen whether both sides will agree for an extension. All of this points towards a volatile day for the Pound as liquidity is thinner than usual as trades wait for pointers on both Brexit and the latest virus cases.

On the other side of the pond the US is still trying to reach an agreement on the long awaited 900 billion USD Covid-19 relief bill. President Trump signed a stopgap funding bill into law that gives the government 2 extra days to reach an agreement and avoids a government shut down. Over the weekend President Trump also signed legislation that could kick Chinese companies off of U.S. exchanges unless American regulators can review their financial audits, a move likely to further escalate tensions between the two countries. China has also threatened to hit back with its own sanctions against the US. This and other factors have helped prompt a market open with a risk off feel as gold and the Dollar strength indicator rising. This will most likely move into a bearish day on stocks globally as they reel from the news.

With a day free of data we're purely being driven by Covid-19 and political related news and a strong sense that volatility will be writhe. As traders start to take time of for the Christmas break expect some swings as liquidity subsides.

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