GBP/USD steady around 1.30 handle as attention stays with coronavirus

GBP/USD has held its own in the face of dollar weakness with the DXY falling back below the 99 handle on Tuesday. The coronavirus is taking up the headlines until the UK and EU trade negotiations and UK budget will take the spotlight next month. At the time of writing, GBP/USD is trading at 1.2995 between 1.2989 and 1.3005 in Tokyo's opening hour on Wednesday. 

The markets are hugely distracted from the matter at hand with respect to Brexit, with media headlines taking a rain check from reporting on the matter ahead of the formal negotiation between the EU and UK kick off in March. The coronavirus has taken up the spotlight with the spread of the virus hitting all corners of the world. 

Europe on high coronavirus alert

The latest on the coronavirus has all of the European nations such as Croatia, Switzerland, Germany, Spain and Austria reporting their first cases of the virus. Italy is a huge concern. Italy has confirmed 322 cases of the virus, the Italian civil protection agency said Tuesday. That's the highest number of coronavirus infections outside Asia. Analysts at ANZ noted that "some EU governments are advising against travelling to infected regions – The EU has made EUR195m available to help combat the crisis. Traffic data for Milan for the last week is showing a drop in passenger movement versus the 2019 average."

Fed speaking hush on coronavirus panic

We Federal Reserve's Vice Chair Clarida speaking who said officials are "closely monitoring the emergence of the coronavirus, which is likely to have a noticeable impact on Chinese growth, at least in the first quarter of this year. The disruption there could spill over to the rest of the global economy. But it is still too soon to even speculate about either the size or the persistence of these effects, or whether they will lead to a material change in the outlook."

UK/EU trade talks start in March

The Council today adopted a decision authorising the opening of negotiations for a new partnership with the UK, and formally nominating the Commission as EU negotiator. The Council also adopted negotiating directives which constitute a mandate to the Commission for the negotiations.

The Council has adopted a clear and strong mandate for our negotiator, Michel Barnier. This confirms our readiness to offer an ambitious, wide-ranging and balanced partnership to the UK for the benefit of both sides. The EU is now ready to start negotiations.

Andreja Metelko-Zgombić, Croatian State Secretary for European Affairs.

As the European Council of the European Union states, "the EU wishes to establish an ambitious, wide-ranging and balanced economic partnership with the UK. The mandate stresses that the future partnership should be underpinned by robust commitments to ensure a level playing field for open and fair competition, given the EU and the UK's geographic proximity and economic interdependence."

From here, the Commission will agree with the UK the dates for the first negotiating sessions. The first formal meeting between the EU and the UK negotiators is expected to take place in early March.

UK budget

Sajid Javid’s abrupt departure as Chancellor of the Exchequer recently supported the pound as markets started to price in the prospects of a significant fiscal expansion in the UK, nullifying the Bank of England rate cut trade. However, while the pound will be supported by the expectation of fiscal giveaways, analysts a Rabobank explained that "in view of the differences between the UK government and the EU over the parameters of their future relationship, the forthcoming talks between the two sides are likely to be tough. Given the threat of a poor deal or even no deal for the UK at the end of the post Brexit transition phase, we see GBP as remaining vulnerable."

GBP/USD levels

• GBP/USD Forecast: Next round of sellers aligned around 1.3060