- GBP/USD at the mercy of Brexit and sentiment at the BoE as well as the Fed.
- UK lawmakers are scheduled to vote on a crucial bill at 10 BST.
GBP/USD is currently trading at 1.2856 having travelled between a low of 1.2770 and a high of 1.2919.
The pound, despite ongoing Brexit anxiety, rose against both the euro and a broadly weaker US dollar on Monday.
Improved risk appetite in global markets has helped to firm the foundations for an otherwise unfavourable environment for the pound.
Cable suffered its worst week in six months last week, as investors grew more pessimistic about the chances of a Brexit deal being reached before the December 2020 deadline.
PM Boris Johnson threw Brexit trade talks into disarray last week by proposing legislation that would break international law by breaching parts of the Withdrawal Agreement which was signed in January
UK lawmakers are scheduled to vote on the bill called the Internal Markets bill at 10 BST, a bill which the European Union has told London to scrap.
BoE and Fed in focus
Meanwhile, the list of economic challenges is growing that is facing the Bank of England.
Without a trade agreement in place, the overall impact is likely to drag on the UK’s post-COVID recovery.
The Bank of England may have to concede to the fact that the downside risks to their August forecasts are growing and that they will need to increase the level of stimulus in November.
Governor Andrew Bailey has indicated that quantitive easing (QE) is a more useful marginal policy tool than negative rates following a lot of discussion about the pros and cons of negative rates in the last monetary policy report.
However, the Bank of England is clearly still on the fence about how useful they might prove to be, but if the economic outlook deteriorates significantly, then full-blown negative rates are a clear possibility over coming months.
As for the Federal Reserve, this week’s meeting will be its first since Chairman Jerome Powell unveiled a policy shift toward greater tolerance of inflation, effectively pledging to keep interest rates low for longer.
Markets are looking for the Fed to strengthen forward guidance, possibly by saying rates will be on hold for 3-4 years which would further pressure the greenback.
GBP/USD levels
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