GBP/USD ended 2020 at a multi-year high but risks remain

GBP/USD ended 2020 at a multi-year high but risks remain

  • The GBP/USD ended the year at the highest level since April 2018.
  • This performance was because of the weaker US dollar and optimism of Brexit.
  • But the UK faces significant challenges, especially on the rising number of coronavirus cases

The GBP/USD pair ended the year at its highest level since April 2018 as the United Kingdom ended its decades-long membership of the European Union. The pair ended the week at 1.3771, 20% above its yearly low of 1.1420.

GBP/USD ended 2020 at a multi-year high

The UK leaves the EU

The UK completed its divorce from the European Union on Thursday last week, five years after the country voted for Brexit.

While the UK exited the EU in March last year, nothing significant changed as the two sides tried to hammer out a post-Brexit trade agreement. After months of intense negotiations, they reached a Brexit agreement on December 24.

The deal means that the two sides will not impose tariffs and put in place a physical barrier. Instead, they will continue trading as usual, albeit with several limitations. The two sides will also continue negotiations about key issues such as the guidelines of the financial sector.

Still, the UK faces a tough road ahead, according to analysts. For one, many firms have already announced that they will move to other EU member states. Banks, which play an important role in the UK, have already shifted more than $1.2 trillion to countries like Germany and France.

More so, the country faces significant challenges about the coronavirus pandemic. While it has already started vaccinations, the number of cases has continued to soar. Indeed, in a statement, Boris Johnson said that more lockdown measures were still possible. As such, analysts believe that this is the biggest challenge the country is facing. In a note, an analyst at Standard Life Aberdeen said:

“Momentum will carry us forward in the near term, but risks are rising that fundamentals reassert and the consequences of Covid-19 outweigh the short-term positives of a Brexit deal.”

This week, the GBP/USD pair will react to the UK and US manufacturing and services PMI numbers that will come out on Monday and Wednesday. It will also react to the US nonfarm payroll numbers that will come out on Friday.

GBP/USD technical outlook

GBP/USD technical chart

The daily chart shows that the GBP/USD pair has been on a strong upward trend since March last year. In recent weeks, the pair has formed an ascending channel that is shown in pink. It has also moved above the important resistance at 1.3482, which was the highest level on September 1.

Therefore, in the near term, the pair will possibly continue rising as bulls target the upper side of the channel at 1.3800. You can create a free demo account to take advantage of these moves.