GBP/USD drops to near 1.2000 as risk-off soars amid a festive week

• GBP/USD is expected to extend its downside journey as investors have underpinned the risk aversion theme.
• Major countries are announcing Covid safety measures for travelers from China that have soared risk-off mood.
• A decline in the United States Pending Home Sales data failed to impact the US Dollar Index.

The GBP/USD pair has witnessed a steep fall after failing to sustain above the critical resistance of 1.2120 in the late New York session. The Cable has delivered a sheer downside and has dropped to near 1.2018. The major is expected to extend its downside journey to near the psychological support of 1.2000 as the US Dollar Index (DXY) has gained significant traction amid the risk-aversion theme.

Market sentiment turned extremely bearish on Wednesday led by a sell-off in S&P500 after the United States administration announced mandatory Covid tests for travelers from China as the dismantling of lockdown restrictions by the Chinese administration at a sheer pace has accelerated the number of infections in the Chinese economy. US equities have continued their bearish run before entering into the new calendar year as the market participants have underpinned the risk-off mood.

The US Dollar Index displayed a V-shape recovery after dropping to near 103.50 and has surpassed the crucial resistance of 104.00. The USD Index has refreshed its three-day high at 104.20 and is expected to remain in the grip of bulls ahead. Also, the 10-year US Treasury yields have climbed to near 3.90%.

A decline in the United States Pending Home Sales data failed to impact the USD Index. The data published by the National Association of Realtors showed that Pending Home Sales in the US declined by 4% on a monthly basis in November while the street was expecting an expansion of 0.6%. It seems that households are ditching the plans of purchasing homes to dodge higher interest obligations and preferring to pay rentals.

On the United Kingdom front, the ending of the CY2023 at a higher inflation rate led by higher energy prices is going to keep the Bank of England (BOE) busy next year in handling the inflation mess. BOE Governor Andrew Bailey might bank upon further increments in the interest rates to trim inflationary pressures.