GBP/USD to tank towards the 1.34 level amid heightened Brexit concerns – Scotiabank

GBP/USD drops on renewed Brexit-related concerns. Economists at Scotiabank expect the cable to test the low-1.34s after initial support around the 1.3485 mark.

Tensions with the EU over Northern Ireland cloud the near-term outlook for the GBP

“With the UK planning to abandon parts of the accord that regulate the free movement of goods between Northern Ireland and Great Britain, the EU is considering retaliatory measures that could eventually include ripping up the free-trade agreement signed in late-2020. For now, we think that is a minimal risk but the probability of this scenario and continued tensions with the EU over the next few months will act as a weight on the GBP.”

“Sterling is testing the 1.35 support area as it extends its losses from yesterday’s test of 1.36. The figure area should halt the steep slide in the GBP, but technical factors are aligned for a re-test of the low 1.34s – after intermediate support at ~1.3485 and the mid-figure zone.”

“Firm resistance is 1.3600/10 followed by the mid-figure area, but the GBP will have to push through 1.37 (50-day MA at 1.3688) to meaningfully negate downward momentum.”