GBP/USD has started the Wednesday session quietly. In the North European session, the pair is trading at 1.2858, down 0.08% on the day. The pair fell by 0.8% on Tuesday, as the US dollar enjoyed broad gains against most of the major currencies. This marked the pound’s worst one-day performance since September 10.
Brexit tensions spilling over
The saga that is Brexit continues to twist and turn, as the bad blood between London and Brussels is only getting worse. With the clock ticking towards the divorce between the EU and the UK at the end of the year, senior politicians are busy finger pointing blame, with little signs of progress on a trade deal between the sides. The EU ratcheted tensions higher last week when it announced that it would launch legal proceedings against the UK over its Internal Market Bill, which is making its way through the British parliament. The EU argues that the bill is a clear breach of the withdrawal agreement which the sides signed last year.
With the Brexit deadline looming, the markets would breathe a sigh of relief if the sides could agree to a framework of a trade deal by the end of the year, but even that modest goal is becoming less likely by the day. Any agreement must go through a lengthy approval process, which means that negotiators have only around a month to reach a deal. This week, EU officials have accused Prime Minister Johnson of being “detached’ from the talks, and Johnson himself stated in September that it would be a “good outcome” for the UK if it leaves the EU without a trade agreement in place. For the pound, however, a no-deal scenario is unlikely to be a good outcome, as investors could well lose confidence in the British currency.
The markets have been treated to positive news from British releases this week, as both services and manufacturing PMIs pointed to continuing growth. The Services PMI came in at 56.1 in September, down from 58.8 but still well into expansionary territory. This was followed by Construction PMI, which accelerated to 56.8, up from 54.6 points. This marks a fourth straight month of growth.
GBP/USD Technical
- There is resistance at 1.2963. Above, there is a resistance line at 1.3054
- We find support at 1.2824, followed by support at 1.2776
- GBP/USD continues to put downward pressure on the 20-day MA. If the pair breaks below this line, it would signal a downward trend
