The British pound keeps holding its status as the most volatile asset in the Forex currency market. Over the last few days, the GBP/USD pair has repeatedly tested the psychological resistance level at 1.30 but failed to hold above this barrier. A rapid bullish rally was initially triggered by the news on Brexit - when it came to light that the British Prime Minister had managed to seal the deal with the EU.
The optimism soared and the GBP/USD pair skyrocketed by almost 500 points in a matter of days. When the price reached the 1.30 mark, many market participants seemed to have gotten cold feet, doubting that bulls would have enough strength to push the price higher. These doubts turned out to be justified - the bears quickly seized the initiative and the pair slipped below 1.29.
Last Saturday, Boris Johnson suffered another defeat in Parliament, which left him with just one option - wait for the European Union to decide whether to agree to his request for a delay until Jan. 31. That is what he did. Johnson sent three letters to Donald Tusk, the President of the European Council. In the first letter, which he didn’t sign, Johnson asks to delay Brexit beyond October 31. In the second letter, he makes it clear that the first letter is from Parliament - not from the Prime Minister. And in his third letter, Johnson urges Brussels not to grant an extension.
When Johnson failed to persuade the Parliament again, market players went back to evaluating the consequences of a “hard” Brexit and its negative effect on the UK British. Experts warn that in the event of a no-deal Brexit, the government debt would soar to its highest levels since the 1960s. According to the Institute for Fiscal Studies (IFS) even a “relatively benign” no-deal Brexit, government borrowing could rise to almost £100bn.
On Tuesday, Boris Johnson made another attempt to win parliamentary backing for his Brexit deal. Given the fact that practically nothing has changed in the terms of his proposal, it is not surprising that the document wasn’t ratified by lawmakers again. Britain’s future now depends on the EU decision whether to grant Brexit delay or not. At the same time, market participants believe that a positive decision will only increase political uncertainty because it will leave the country in limbo for a long time.
It’s worth considering the scenario when the EU doesn’t grant a delay. In this case, Boris Johnson will have no choice but to withdraw the country from the European Union without a deal, losing access to the single European market. This can happen as soon as October 31. It’s been two hectic months, and political uncertainty in the UK persists. With this in mind, we expect the increased pressure on the pound sterling, which may initiate a full-fledged bearish rally in the GBP/USD with the target at 1.25. We recommend using this movement to earn from the most-watched and high profile political divorce of all time.