05.01.202119:11 Forex Analysis & Reviews: Pound is expected to collapse soon

GBP / USD remains afloat in the market, but is trading below the price levels reached in the previous sessions. The new restrictive measures imposed by the UK government was the main reason for this, and the optimism brought by the Brexit trade deal did not help either.

As a result, today, GBP / USD was trading at 1.35, and there are severals factors that point to a possibility that the quote will drop to 1.34 in the coming sessions. There is even a high chance that it would collapse even deeper.

Firstly, a decline is inevitable amid an economic lockdown, which the UK is currently facing because of the rapid and persistent spread of COVID-19. Many are even concerned that the UK health system would collapse in just three weeks.

These restrictive measures worsen investor sentiment, therefore, many project that the UK economy will shrink by about 10% soon.

Another factor is the uncertainty surrounding the UK's financial services sector, which accounts for about 7% of the country's economy. The new Brexit deal does not regulate relations in this direction, so many expect that the Bank of England will resort to softer policies in the future. In particular, they expect a drop in base interest rates, which increases pessimism around the British currency.

Therefore, yesterday, the GBP / USD pair traded in a bearish pattern, and in six hours, the quote dropped by more than 1.5%. The fall preceded Boris Johnson's announcement, but after the prime minister introduced a national lockdown, the pound began to recover in the charts.

However, many view this slight upward move as only temporary, and they expect the pound to continue declining soon. It seems that traders are no longer optimistic about the currency's outlook.