- Boris Johnson has said that Brexit must happen on October 31st and pound is heavy.
- GBP/USD is trading below its main SMAs suggesting bearish momentum.
- However, an extension to Brexit is a more likely scenario.
GBP/USD has travelled within a range of between 64 pips today, a relatively tight range considering the political turmoil that the UK now officially faces with the former Foreign Secretary, Boris Johnson, winning the Conservative leadership election today, effectively making him the new prime minister, (PM).
The question now on everyone’s minds is whether or not he can do what PM May couldn’t do, and effectively perform a miracle, by delivering Brexit by the said Brexit date which was postponed by an extension to the new 31 October; Consequently, the pound is heavy on prospects of a hard Brexit:
- UK PM Johnson: We must be out of EU by October 31
However, much of the observers of this situation are actually expecting another deadline extension with the majority not in anticipation of a hard Brexit. While that is a factor in the value of the Pound, priced in as a slim chance, the majority of the downside in Sterling is more to do with the uncertainty and state of affairs in UK government.
There is probably a greater chance of a general election than a hard Brexit. However, considering the opposition leader’s current ratings dwindling away to the downside, neither the Conservatives nor Labour are particularly in the lead in the opinions of the public, an extension to the Brexit date is the most likely scenario on the cards at the moment.
“We expect an extension until March 2020. This would be in line with what the vast majority of the EU Council already wanted at the emergency EU summit in April (only Macron vetoed against the decision),” analysts at Nordea Research argued, who expect that. in the end, a deal somewhat close to May’s to pass
“We judge that both the odds of Bojo passing a deal before the October deadline (aka. bringing in the mojo) as well as the risk of a no-deal are around 15-20%…when looking ahead, the important negotiations of the EU budget for 2021-2027 are needed to be finalized probably in H1 2020, which gives a clear incentive for both the EU and the UK to find a compromise.”
All eyes turn to US GDP
Meanwhile, across the pond, while we are in a Federal Reserve speaker blackout until next week’s 30/31 July Federal Open Market Committee where a 25 basis point cut is fully priced into the value of the Dollar, all eyes will be on the US GDP data at the end of this week.
- US Q2 GDP: First reading under 2% in two years expected – Wells Fargo
“We expect GDP to advance a near-trend 2.0% q/q saar in Q2, down from a strong 3.1% print in Q1. Unlike the prior quarter, we expect consumer spending to be a key engine of growth, rebounding to about 4% after a wobbly start to the year. Business investment, however, continued to slow due to heightened uncertainty while inventories and net exports were likely a drag on growth,” analysts at TD Securities explained.
GBP/USD levels
“GBP/USD is trading below its main SMAs suggesting bearish momentum. Immediate resistances are seen at 1.2478 and 1.2543.”
– Flavio Tosti, editor at FXstreet notes:
- GBP/USD technical analysis: Cable under pressure near 1.2450 in the New York session
Share
