- GBP/USD is choppy as ever as PM scrambles towards the Brexit finish line at the eleventh hour, but that is where the real challenges just begin for her.
- GBP/USD is currently trading at 1.2970, down from a high of 1.3037 and up from a low of 1.2885.
GBP/USD has been all over the place since early August, travelling from the 1.2660s to a high of 1.3298 in mid-Sep and then back to a double bottom low of 1.2920s at the start of Oct, reversing to 1.3258 in mid-late Oct, then more recently, trading between the 1.2700s and 1.3170s. On average, one could say, sterling’s value is somewhere between all of that at around 1.2900 as we move into crunch time for UK politics and Brexit.
The pound has found support on the basis that a Brexit deal has been reached. However, it can’t see a sustained bid on the assumption that there is a tremendous amount of scepticism surrounding what PM May is seeking Parliament to vote in favour. The deal that PM May wants to put forward would effectively keep the UK attached to the EU indefinitely, without a say in European law-making and that is not hat the country has voted for. Without Parliament approving it, the whole process is likely to drag on and on and the leave one massive wrench in the works for the BoE.
“The strongest logic for approval of May’s Brexit deal is negative. For the Brexiteers a rejected deal means a second referendum or a general election or both. For the Remainers a refusal means a no-deal exit and economic chaos. May’s deal avoids what each side fears most.”
Joseph Trevisani, Senior Analyst at FXStreet explained.
The uncertainties surrounding Brexit makes life very hard for the MPC to navigate monetary policy and likely means that the BoE will remain on hold for the considerable future. Subsequently, sterling cannot get off the ground.
Moreover, no deal Brexit sentiment will continue to weigh on the pound the longer that the saga goes on and then, of course, the biggest risk of all is that if Parliament can’t agree on a deal, the UK is then looking at a snap election which could feasibly see Labour elected into power and send Brexit right back to square one again – which may initially hurt the pound but likely be supportive in the longer run, especially if another referendum is held and the electorate vote to stay in the EU.
“We still think ‘no deal’ will be avoided in the end – allowing a re-pricing of the BoE cycle some further GBP strength, but for now, it is too soon to get carried away,”
analysts at ING argued.
GBP/USD levels
GBP/USD’s recent decline is to continue with the September low at 1.2785 being targeted,” analysts at Commerzbank noted:
“If slipped through, the August and October lows at 1.2696/62 would be in focus. Below 1.2662 would trigger further weakness to the 61.8% Fibonacci retracement of the 2016-2018 advance and the June 2017 low at 1.2593/89. Immediate downside pressure will remain in play while the cross trades below the 55 day moving average at 1.3023. Further resistance comes in at the 1.3175 current November high below which remains a bearish bias.”
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