GBP/USD: Three reasons to consider a downside correction

GBP/USD soared on Wednesday amid the resumption of the Brexit negotiations officially and hopes of a potential deal by mid-November. However, Yohay Elam, an Analyst at FXStreet, explains three reasons why the cable may be headed lower after the Brexit breakout. 

Key quotes

“Agreeing to intensify talks does not mean reaching common ground on the thorny issues. London and Brussels are at odds over state aid. This significant topic is competing with a minor, yet politically charged one – fisheries. Moreover, Britain and the bloc are still at loggerheads over the previous accord. Johnson's Internal Markets Bill knowingly violates the Brexit Withdrawal Agreement and the EU took legal action against it. Overall, the enthusiasm from new talks may fade swiftly.” 

“US security officials announced that Russia and Iran obtained voter registration files and are threatening voters. While the elections infrastructure seems unharmed, the specter of foreign intervention is weighing on sentiment. Moreover, President Donald Trump has narrowed the gap against rival Joe Biden in recent state and national polls, raising the chances for a contested election. Both septuagenarians will clash in the last presidential debate late on Thursday and may influence undecided voters.”

“Additional English regions are entering Tier Two or Tier Three limitations as infections soar and break records. Wales already announced a strict lockdown. That dims economic prospects and could send sterling lower. The situation is only marginally better in the US, where cases have not hit new highs, but hospitalizations are on the rise – including in warmer southern states.”