Bearish Prospect for UK-EU Talks Inhibits GBP Upside

WikiFX News (15 Oct.) - With the EU summit being held on October 15 & 16, the pound witnessed its overnight implied volatility jumping above 13% to a seven-month high. Besides, GBP/USD has lately breached below the support at 1.2885 from the 20-DMA and may end its previous advance in the wake of the summit.

The major reasons for the weak pound are both the news that Eli Lilly and Johnson & Johnson have paused their Covid-19 vaccine trials and the unadvanced talks in the US fiscal stimulus bill, which have boosted the demand for the greenback at the expense of the pound.

Domestically, Andrew Bailey, Governor of the Bank of England, said that he did not think the UK economy was recovering sharply because of headwinds from the Covid-19. That came after the UK government announced a new three-tier system of local lockdowns.

Moreover, markets have held a gloomy view about the EU-UK talks on their post-Brexit relation. While the two sides are still dickering over it, a meeting of EU leaders will be held on October 15 & 16, on which the leaders seem likely to propose a tactic to gain time.

If the support at 1.2822 from the 100-DMA is sustained, the pound may resume its advances in future tradings.

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Chart: Trend of GBP/USD