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  3. A new strain of the virus hit London and dragged down GBP heavily, but the U.S. has finally sent out some good news as policy makers agreed on the $900 billion stimulus package

A new strain of the virus hit London and dragged down GBP heavily, but the U.S. has finally sent out some good news as policy makers agreed on the $900 billion stimulus package

BLOG December 21, 2020 at 02:41 am (GMT)
  • GBP sank heavily as new coronavirus strain hits London
  • U.S. congressional leaders agree on a $900-billion fiscal stimulus package
  • Liquidity likely to dry up during Christmas and may significantly impact minor currencies

British Pound sank as COVID cases, once again, began to surge in London. Reports are saying that this wave includes a new variant of the virus that is rapidly replacing other versions. It may include some mutations, the causes and effects of which remain currently unknown. This has brought about another round of full lockdown in the city and rising risk appetite across the global financial markets. Meanwhile, Brexit negotiation is not sending out much news.

Agreement on a US fiscal stimulus package has finally been reached, totaling $900 billion. But interestingly it had little impact on the downbeat momentum that is currently surrounding USD. However, it is hard to say that without the agreement the selloff might be even more aggressive. The package includes a broad range of initiatives, including direct payments of $600 for most Americans and $300 as unemployment benefits per week. Moreover, $248 billion has also been set aside for forgivable loans to small businesses. Other industries such as airlines, education and vaccine logistics will also receive a certain degree of aids.

As Christmas moving closer, FX traders need to be cautious on the widening spread. Institutional investors will be taking holiday leaves with their families, which will significantly reduce market liquidity and increase volatility. Cost of trading, as a result, will be higher, although major pairs – especially those involve USD – will be less impacted. However, spreads on the minor pairs such as NZDCHF will potentially be a lot wider. As liquidity decreases, market will create more volatility, and FX traders may need to consider placing more stops to prevent unwanted losses.