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Article by Sushrut Sarkar

On Tuesday, May 26, 2020

Heightened risk and uncertainty underpin Pound Sterling

The pound is heading for this year’s fourth monthly slide, and a lengthening list of risks is pointing to more turbulence in June. Sterling traders look set to face heightened uncertainty on multiple fronts next month—the end-June deadline to extend the Brexit transition period, the possibility of negative interest rates in the U.K. and the economy’s tentative exit from the pandemic lockdown. Sterling has slid almost 3% versus the dollar this month to around $1.2240 on Tuesday, falling in May for the 11th year in a row.

Dominic Cummings, Prime Minister Boris Johnson’s most powerful adviser, is under attack over claims he breached lockdown rules. Cummings will make a statement to reporters and take questions at 4 p.m. Should the U.K. become the next major nation with negative interest rates, the pound could also face pressure from the options front, where risk reversals suggest that traders have stayed less bearish compared with the spot market.

How is the Pound trading?

It will be interesting to see if the Pound can break its daily resistance at 1.2285(Marked in orange line) after a positive start of Tuesday’s trading session. A successful break will open the door for the price to go up & test the May 11th high at 1.2440.

As the pair has traded mostly in a range bound market, we will not be surprised if the price goes up as it just got a bounce from 1.2090 which is low of the range of last three month trading.

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