GBP/USD has finally managed to make a u-turn and shift from the bearish mood that coincided with ongoing anxiety over a potential no-deal Brexit. The pair has gained 0.94% as of 2:40 PM UTC, currently trading at 1.3114. Initially, the price broke above the psychological level of 1.300 in the European morning, which opened the door to fresh weekly highs. Thus, the pair has recovered more than one-third of the losses suffered in the dramatic decline, trading at the same levels right before the UK election.
Investors chose to ignore the worries about a no-deal Brexit. The topic has been dominant since the moment when UK Prime Minister Boris Johnson secured a major victory and announced his intention to reach a trade agreement with European leaders by the end of next year. Elsewhere, EU officials and markets expected the UK government to extend the deadline of the transition period beyond December 2020. However, the PM went as far as to make any such attempts illegal by law. The British parliament passed the second reading of the Withdrawal Agreement Bill (WAB) last Friday.
Economists are worried that Johnson’s move might lead to a no-deal Brexit, a scenario that could bring the most damages to the UK’s economy. As a result, the pound crashed about 3% against majors, including the USD. However, some of these fears eased in the wake of Christmas holidays, allowing the GBP/USD pair to recover some of the losses amid thin volumes.
It is likely that investors have reacted to recent comments from European Commission President Ursula von der Leyen, who suggested earlier today that Johnson should reconsider his refusal to extend the transition timeframe. Markets might regard her words as a hope that the EU won’t let a no-deal Brexit happen. The official told the French magazine Les Echos:
“I believe that it would be reasonable to review things in the middle of the year, if necessary to see if an extension is needed.”
Besides, the damaging effect on the pair’s latest bearish trend was intensified by a stronger dollar on US-China trade optimism. However, that sentiment is oversaturated as the USD has already priced in the outcome.