GBP/USD Unlikely to Pass 1.30? Brexit on Agenda

Nigel Frith

The UK voted to leave the EU back in 2016 – but this quarter may see the most profound impact yet of the decision to quit. The UK is still bound by the EU’s trade terms, and the two sides need to come to an agreement by the end of this year in order to avoid the country leaving with a so-called ‘no deal’.

In recent days, there appears to have been something of an uptick in the pound’s value, with the currency appearing to rise somewhat. Prime Minister Boris Johnson has told Europe that he wants a trade deal in place by the middle of October. According to some analysts, a basic deal is the most likely outcome, but there are no guarantees. Perhaps the pound’s slight positive performance has been influenced more by affairs in the US.

President Donald Trump’s recent release from hospital gave the markets an opportunity to breathe a sigh of relief, not least because it provided a much-needed sense of stability. The potential election of Joe Biden, his Democratic presidential challenger, could also have had a positive effect – giving the markets a chance to look into more risky currencies, such as the pound. Looking at the price chart, strategists said that the pound’s continued rise may well be circumscribed by patterns of resistance. The next major challenge for the currency’s dominance is likely to be at the 1.30 point, which is a significant level due to the whole number – and interval of 10 – that it represents. This means that it carries some so-called ‘psychological importance’ with it – and therefore could catalyse crowd behaviour in the opposite direction. It did, however, reach this level in September – and if it is able to do this again, it may find itself popular with traders and therefore experience even more of an uptrend.

Looking to the economic calendar, there are some important events coming up this week for the pound. Wednesday morning will see a house price index for July come out from the government. The release, from the Department for Communities and Local Government – which is responsible in part for housing policy – will come out at 8:30am GMT. It is expected to show a year-on-year change from 3.4% to 4.5%. On a similar note, RICS will release a housing price balance figure just after 11pm GMT, covering September. This is due to show a change from 44% to 40%.

On Thursday morning, meanwhile, there will be a speech from the Bank of England’s Governor Andrew Bailey. He is due to make his remarks at 7:25am GMT, and these are likely to be watched closely by pound traders looking for signs of a potential future interest rate cut. Later in the day, there will be a report released by the Bank, followed by meeting minutes. These are due at 8:30am GMT and 9:30am GMT respectively.

Nigel Frith

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