GBP/USD: Mildly offered around 1.2050 amid Covid-led risk aversion, challenges to UK economy

• GBP/USD prints two-day downtrend, struggles around the intraday low.
• Record daily infections in China, protests to remove Zero-Covid policy weigh on sentiment.
• Fears of widespread lockdowns in the UK supersede hopes of stimulus.

GBP/USD bears attack short-term key support around 1.2050 during the second downbeat performance heading into Monday’s London open. In doing so, the Cable pair struggles to cheer the stimulus hopes amid fears of major strikes in the UK, as well as the Covid woes in China.

“Britain’s government intends to make 1 billion pounds ($1.2 billion) of public funding available for home insulation projects from early next year, widening access to assistance that was previously only available to poorer households,” reported Reuters.

On the other hand, the Coronavirus fears escalate amid the record-high daily infections from China and protests over the government’s Zero-Covid policy. The reason could be linked to the alleged fire that killed around 10 people in Shanghai as they couldn’t leave the building because it was partially locked down, per the rumors spread on the internet. “Infections rose as hundreds of demonstrators and police clashed in Shanghai on Sunday night as protests over China’s stringent COVID restrictions spread to several cities,” mentioned Reuters. The news also quotes China’s National Health Commission as it stated, “China reported a fifth straight daily record of 40,347 new COVID-19 infections on Nov. 27, of which 3,822 were symptomatic and 36,525 were asymptomatic.”

Elsewhere, Reuters reported that British public-sector pay will not be able to keep up with soaring inflation, transport minister Mark Harper said on Sunday, as the country faces a wave of industrial disputes. The news also mentioned, “Industrial action is becoming more widespread across Britain’s transport network and last week Britain’s Royal College of Nursing trade union announced dates for its members’ first strike in more than 100 years.”

During the last week, UK’s key activity numbers marked downbeat performance for November and keep the Bank of England (BOE) struggling for clear directions even as hawks expect more rate hikes.

Against this backdrop, the S&P 500 Futures dropped half a percent while the US 10-year Treasury bond yields fell five basis points (bps) to 3.65% by the press time.

Looking forward, risk catalysts could entertain the GBP/USD pair traders ahead of a speech from the Federal Reserve (Fed) Chairman Jerome Powell and the United States’ monthly employment data for November, up for publishing on Thursday and Friday respectively.

Technical analysis

A daily closing below a two-week-old ascending support line, near 1.2030 by the press time, appears necessary for the GBP/USD bears to take control. Until then, the buyers targeting the August month high near 1.2300 could keep the reins.