Vulnerable GBP Set To Stay Stuck Between 1.20 - 1.27

The British currency fell to a 20-month low on Monday, after Theresa May postponed an important vote for the Brexit plan.

GBP/USD lowered to 1.2500 and EUR/BGP course jumped to 0.9080. At the time of writing, the pound departed from earlier extremes and was traded near 1.2610.

At the same time, the British currency remains vulnerable to the political confrontation between the prime Minister and the Parliament, which is gaining momentum. Calls for Theresa May to "give way" to other leaders are heard more strongly. May intends to return to negotiations with the EU and discuss a number of issues of concern to Britain, the main of which is the backstops on the Irish border.

Political uncertainty is negatively perceived by markets, keeping pressure on the pound. The EU summit on this issue set to held on Thursday, but EU policymakers has already stated that the plan is final and will not be significantly revised.

The Bank of England in the previous weeks warned that as the uncertainty around Brexit is decreasing, the issue of raising rates is returned to the agenda. Now the chances to implement this policy steps in the coming months are falling, that influences prospects of the British currency. In addition, uncertainty has an extremely negative impact on business sentiment.

Markets again put in quotes the chances that Britain will leave the EU on 29th March 2019 without a deal with the European Union and without a transition period, which risks turning unpredictable consequences for business and economy. Fearing this, the markets risk getting into high turbulence.

From the technical analysis perspective, in stormy market reaction on Monday GBP/USD fell under an important level of 1.2700. From August, the pound was supported near this mark, but yesterday's decline below it could open a new chapter by sending a pound in to the 1.20-1.27 area for the coming months. In this area, the pair traded during a period of strong concern for Britain's fate from October 2016 to April 2017.

On the problems of the pound overnight the euro decreased against the dollar. EUR/USD lost 0.8% from intraday highs at 1.1440, dropping to 1.1350.

The dollar index added 0.7% on the results of Monday, due to the growth of demand for American currency as a defensive asset during the turbulence of European markets. However, the easing of the Fed's tone, the weakening of the momentum of economic growth and inflation in the US, can deter the dollar from further strengthening.