Tag: GBP/USD

  • UK Getting Ready to Trick or Treat the No-Deal Brexit

    UK Getting Ready to Trick or Treat the No-Deal Brexit

    2 min read

    UK Getting Ready to Trick or Treat the No-Deal Brexit

    by Gorica Gligorijevic

    After assuming the office of UK Prime Minister, Boris Johnson is pushing with preparations for eventual no-deal divorce from EU on October 31. The news caused a negative impact on the British pound.

    Some people would say that it was the writing on the wall, but actual writing in the Sunday Times brings confirmation that things are afoot. Things and plans which previous UK PM, Theresa May, not only avoided but actively suppressed and fought against. The UK is getting prepared for the potential no-deal Brexit.

    After a reshuffle of his Cabinet, in which Leavers have remained and Remainers have left, PM Johnson has appointed Michael Gove to mistrial position of the Chancellor of the Duchy of Lancaster and charged him with preparations for the no-deal exit from the EU. Gove has laid out his intentions in the op-ed in the Sunday Times July 28 edition. 

    “With a new prime minister, a new government, and a new clarity of mission, we will exit the EU on October 31st. No ifs. No buts. No more delay. Brexit is happening,” he wrote. With the leaders of EU determined to keep to their current approach to the Brexit, Gove is certain that “no-deal is a very real prospect” and that the UK government is now operating under such assumption.

    Chancellor of the Exchequer, Sajid Javid, in his op-ed in the Sunday Telegraph has announced additional funding in excess of £1 billion pounds, on top of the £4.2 promised by the previous PM after the 2016 Referendum. 

    “Yes, we want to leave with a good deal – one that abolishes the undemocratic backstop,” Javid wrote in The Sunday Telegraph. “That would be better for the UK, and better for the EU, and work is already underway to achieve this.”

    The British pound continues the slide

     

    The British pound continues the slide against the US dollar

     

    Despite this news, the British pound is taking the hit against the US dollar. Having fallen to the 1.2375 parity, lowest since April 2017, the pound has slid almost 17% against the USD.

    And despite all the sterling effort, the UK government might put in staving off the worst outcome of Brexit, the outlook for the pound is not promising. With the Office of Budget Responsibility fiscal stress test predicting a year-long recession after Brexit, the pound is looking to continue the slide.

    Downturn which may easily reach the 25% drop versus the dollar since 2016 Referendum, as predicted by the Bank of England in the worst-case scenario of no-deal Brexit.

    The GBP/USD pair erased more than 100 pips for the week. It is very possible to start this week with gaping lower.

     

    Support levels: 1.2375 1.2330 1.2290

    Resistance levels: 1.2420 1.2460 1.2505

  • Pound falls on Brexit stage fright and BoE Decision

    Pound falls on Brexit stage fright and BoE Decision

    2 min read

    Pound falls on Brexit stage fright and BoE Decision 1

    The Sterling pound yesterday dropped below 2-week lows in the early London session.

    The investors priced-in Brexit uncertainty ahead of a crucial meeting between Theresa May and the European Commission President.

    The GBP/USD currency pair dropped to new 2.5-week lows following the Bank of England‘s interest rate decision in the mid-European session.

    The GBP/USD currency pair yesterday dropped to a low of 1.2855 following the BoE rate decision before rallying to a high of 1.2997 on Mark Carney‘s balanced comments.

    Sterling is trading little changed at around mid 1.2900 before the UK Prime Minister Theresa May reaches Dublin to meet her Irish counterpart and discuss the problematical border plan.

    Cable (GBPUSD, often referred to as “The Cable”) tested fresh lows in the mid-1.2800s on Thursday. Although running to recover some ground later and close the day with small gains. It was a small drop in open interest and a decent raise in volume.

    There is a potential continuation of the bounce, which will leave at the same time occasional dips shallow.

    At the time of writing, the Pound was down 0.02% at $1.2932.

    Pound falls on Brexit stage fright and BoE Decision

    image Pound falls source Yahoo Finance

    The 4 hours chart shows that the pair quickly recovered above its 200 EMA, although it has already tested levels below it. A bearish 20 SMA keeps capping the upside, while technical indicators have recovered from oversold levels, now losing upward strength within negative levels, indicating that the risk of an upward extension remains limited. The pair would need to surpass the 1.3040 resistance to be able to extend its gains toward the 1.3100 price zone, yet as long as Brexit uncertainty prevails, the most likely scenario is sellers taking their chances on spikes above 1.3000.

    Support levels:  1.2925 1.2880 1.2835
    Resistance levels: 1.2995 1.3040 1.3090

    What about shares?

    UK shares were having a good day on Tuesday, with the FTSE 100 has gone from strength to strength as the morning has progressed.

    Shortly before midday, the UK’s benchmark share index was up 106.95 points, or 1.5%, at 7,141.08.

    The index was given a lift early on by BP’s better-than-expected results, which have pushed the oil giant’s shares up more than 5%.

    Shares were also boosted after the pound fell back in the wake of the disappointing survey of the UK services sector.
    Currently, rate is $1 = £0.7728.

    Shares often rise when sterling falls. The weaker currency lifts the value of companies’ overseas earnings when they are brought back to the UK and converted back into pounds.

    Governor Carney’s said on Thursday, that further rate hikes should not be priced out of the Pound.

    Focus returns to Brexit and whether Theresa May can find more support for concessions to deliver a deal pleasant to Parliament.

    All options are still on the table

    With the UK government still working its way to the UK parliament with the Brexit agreement approval, the Brexit uncertainty is set for the next weeks. The 2019 GBP/USD forecast highly depend on the result of the Brexit deal going forward. All options are still on the table leaving different GBP/USD scenarios all applicable.

    Sterling could fall past 1.2000 level that historically frames the bottom and serves as a territory of rebound for GBP/USD in case of hard Brexit. The reasonable solution for all interested parties in the UK parliament, the UK government and in the EU should be to avoid the scenario of no-deal Brexit. That would throw the UK economy and Sterling into confusion with the Bank of England saying the bottom for Sterling would be some 25% lower.

    Also, no transition Brexit would realize an unfavorable scenario for Sterling with falling to the lowest level since 1985 of 1.0700. Such scenarios are still considered doubtful. Should such scenarios develop, it is almost a sure shot for traders while buying GBP/USD at historical or/and cyclical lows.

    The chance of the UK finally making some kind of Brexit deal with the European Union is still the mainstream scenario for the UK and for GBP/USD.

    A no-deal Brexit is still not the most probable scenario for the UK economy going into 2019. The UK parliament stands in deep opposition to the Brexit deal agreed by the government.

    The ruling Conservative party is divided profoundly.

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