Higher U.S. Treasury yields helped the dollar recover against its rivals on Monday. The pound, one of the hardest hit by the rising US dollar, fell below $1.35 for the first time since the beginning of this year. The sterling may fall more, as the factors of pressure are also internal problems and not just the growth of the dollar.

The joy of the post-Brexit trade deal signed in December was quickly replaced by pessimism due to the introduction of tougher lockdowns to combat the spread of the new type of COVID-19. As the chief medical adviser to the UK government noted, the situation is critical. The next few weeks could be the worst in terms of hospitalizations in the country.

As the CFTC futures report showed, speculators maintained a small net "bullish" position on the pound during the first week of 2021.

"The prospect of increasingly tight restrictions in the UK due to a new strain of the virus means that the economy will contract further in the first quarter, and this obviously puts more pressure on the Bank of England," strategists at MUFG wrote.

Traders began to put in quotes the risk of introducing negative rates by the British regulator. Markets do not rule out that these measures may be introduced in May. At the same time, immediately after the conclusion of the Brexit trade deal, August appeared in the estimates. It is possible that the Bank of England will act earlier.

"Now we think that negative rates will be introduced next month. This could lead to a fall in the pound to about 1.32-1.33 and 92-93 pence per euro," MUFG predicts

Markets are expected to focus on the speech of Silvana Tenreyro, Bank of England's policymaker. On Monday, Tenreyro gave a speech about negative rates.

Undoubtedly, the dynamics of the dollar will influence the balance of power in the GBP/USD pair. The fall of the pound on domestic problems will be less noticeable than together with the recovery of the dollar.

The fate of the bearish dollar index hinges on the Democrats' ability to approve a new bailout package, which will fuel inflationary expectations, stifling real returns, and the greenback's attractiveness.

In the meantime, the dollar is steadily growing against the basket of competitors. Buyers' target is 92 points. If the set goals are achieved and then the downward movement resumes, the dollar is expected to meet the main sales at 91.00-91.20.