FTSE and sterling fall on new fast-spreading Covid strain
The British pound and the FTSE 100 dropped today as the number of Covid-19 cases continued to rise in the UK. Yesterday, the country confirmed more than 35,000 new cases, bringing the total number of infections to more than 2 million. Traders are also mostly worried about a new strain of the virus that seems to be spreading faster than the original one. Added to that, traders are worried about the lack of progress on Brexit even as the deadline of 31 December nears.
US futures are pointing downwards to a lower open as worries of the new virus strain dampen optimism following the latest agreement between US politicians on a stimulus deal. In a statement yesterday, Nancy Pelosi and Mitch McConnell said that they had reached a deal that will provide more than $900 billion in relief. These funds will go towards state and local governments, individuals, small companies, and airlines. The deal is a compromise between the $2.2 trillion that Democrats wanted and the $500 billion that Republicans were asking for.
The euro dropped against the US dollar as European countries placed travel bans to and from the UK to prevent the new strain from spreading. Analysts fear that the new strain has already reached other European countries like Belgium and the Netherlands, which could affect the overall recovery process. The euro also dropped because of the strong USD as the strain pushed investors back to the safety of the dollar. The dollar index rose by about 0.50% today,
The EUR/USD declined to an intraday low of 1.2170, which is the lowest it has been since Thursday last week. It is also slightly below this year’s high of 1.2272. On the hourly chart, the price has moved below the 25-day and 15-day exponential moving averages, which is a sign that bears are gaining traction. Similarly, the signal and main lines of the MACD have continued to drop. Therefore, the pair will likely continue falling as bears aim for the next support at 1.2150.
The GBP/USD pair dropped to an intraday low of 1.3220, which is the lowest it has been since December 15. On the four-hour chart, the price managed to move below the ascending trendline that is shown in yellow. It has also moved below the short and medium-term moving averages. It is also along the lower line of the Bollinger Bands while the money flow index (MFI) has continued to drop. Therefore, the pair will likely continue to drop during the American session with the next target being 1.3200.
The FTSE 100 index dropped to a low of £6,385 as the number of Covid cases in the UK continued to rise. The decline today was a continuation of a downward trend that started on December 14 when the index reached a multi-month high of £6,637. The price has also moved slightly below the 25-day and 15-day exponential moving averages. Therefore, like the sterling, the index will continue being under pressure as bears target £6,300.