Business

The British pound falls because the UK faces a brand new Covid burden that stalled in Brexit commerce talks

the-british-pound-falls-because-the-uk-faces-a-brand-new-covid-burden-that-stalled-in-brexit-commerce-talks

UK Prime Minister Boris Johnson gestures as he hosts a virtual press conference at 10 Downing Street in central London on December 19, 2020.

TOBY MELVILLE | POOL | AFP via Getty Images

The British pound hit on Monday as the UK has concerns over a new strain of coronavirus as well as uncertainty over the Brexit trade deal.

Over the weekend, the UK announced it had identified a new strain of Covid-19 that is spreading faster than previous variants. Following that announcement, other nations said they would temporarily restrict travel from the UK to prevent the new strain from entering their borders. The British government ordered an even stricter lockdown of Covid in London before Christmas.

As of 06:34 GMT, the British pound fell more than 1% to $ 1.3349 from $ 1.36 last week. Meanwhile, the euro also fell to $ 1.2184 after breaking above the $ 1.225 level last week.

Currencies recently wavered around headlines related to Brexit trade deals. The UK and the European Union remain at an impasse as the December 31 deadline expires and disputes over issues such as fisheries plague the negotiations.

"We're pretty optimistic … about the pound for the next few months."

Gareth Berry

Macquarie Group's managing director and currency and exchange rate strategist

Analysts remain optimistic

Still, analysts told CNBC on Monday that despite the headwinds the currency is facing, they remain bullish on the pound through 2021.

"We should expect some volatility in the pound and what we see this morning reflects that," Rodrigo Catril, senior currency strategist at National Australia Bank (NAB), told CNBC's Squawk Box Asia on Monday morning.

A Brexit trade deal before the end of the year is "still likely," Catril said, adding that "it will make sense and politically difficult to argue that the deal failed … because of (fishing)". due to the relatively small size of the industry in the entire economic agreement discussed.

Macquarie Group's Gareth Berry told CNBC's Street Signs Asia on Monday that he hoped for a positive resolution to the Brexit talks by the end of this week.

"That should lead to a deal that all sides can live with and that can ultimately be ratified the following week in time for December 31st," said Berry, chief executive officer and currency strategist at Macquarie. "Sterling should love this, and that's one reason we're pretty optimistic … about Sterling for the next few months."

Speaking of the virus, NAB's Catril said its near-term economic impact is "substantial", although expectations of stimulus and vaccine launches in the coming months are encouraging markets to "see the positive side in the medium term".

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Steven Gregory