Sterling remains highly volatile in the past few weeks amid the UK’ divorce from EU. All eyes are on the Brexit deal. No wonder that every market participant who is even slightly aware of the current news and fundamentals tries to grab his piece of the pie and earn from this major and significant event, especially now, when the GBP/USD movement is highly predictable. Let’s take a look at what happened with this currency at the beginning of this week, and what can happen next.
British pound plummeted to its 20-month low on Monday, reaching 1.2550 level. The next day, on Tuesday, the decline continued and the price tested 1.25 support. Such price action indicates that the market is skeptical about the pound’s bullish prospects. Aggressive selloff was the result of growing political uncertainty in the UK, especially after Theresa May decided not to take the Brexit deal to vote in the UK Parliament. If she did, the deal would be most likely rejected, and she would have to resign, giving her power to Corbyn, the leader of the Labor party. Theresa May was accused of cowardice and blamed that she was only concerned with keeping her position, rather than with matters of national security.
Pessimistic moods strengthened after Theresa May admitted that the hard Brexit scenario was real. Moreover, the Government is already developing a roadmap in case of its implementation. It has become clear that time is running out, the UK can’t make everybody happy and risks leaving the EU without an agreement at all. There are alternative scenarios too. Among them: the second Brexit referendum or a general election. Both options imply increased pressure on the British pound, which keeps crumbling on the backdrop of continuing political turmoil.
National statistics data disappointed as well. Industrial production in the United Kingdom decreased by 0.8% on an annual basis. Such weak results in the industrial output were registered about 10 years ago when the global economy faced a major financial crisis. News from the labor market left much to be desired too. Unemployment increased again, indicating even bigger problems for the UK economy at the end of this year. Considering all of the above, we recommend keeping short positions in the GBP/USD pair until the pound holds below 1.20 target. The pound is about 500 points away from this mark, so try not to miss out on this price movement.