Today, for traders, the pound / dollar pair, however, like for other currency pairs involving the pound, is an indicative day. Market participants were reminded again that Brexit has an absolute advantage over all fundamental factors without exception even if it concerns such key indicators as the consumer price index. Today's rally of GBP / USD pair eloquently demonstrated the insignificance of macroeconomic statistics in comparison with the "divorce process" of Britain and the EU.
The trading day began for the British currency with positive and promising news. Inflation figures in the UK exceeded forecasts, contrary to the modest expectations of most experts. On an annualized basis, the consumer price index rose to a six-month high, reaching 2.7%, the last time such growth was recorded in February this year. In monthly terms, the index jumped to 0.7%, thus renewing the one and a half year maximum (since March 2017). The core inflation index (net of volatile prices for electricity and food), as well as the retail price index. All these indicators came out in the "green zone", exceeding analysts' expectations. The reaction of the pound was not long in coming. In pairing with the dollar, he updated two-month highs and tested the 32nd figure.
However, the bulls did not celebrate success for long. In the second half of the day, the British press reported that Theresa May could reject Brussels' proposed plan for the settlement of the Irish border problem. Let me remind you that the other day, the representative of the main negotiator from the EU, Michel Barnier, announced that on October 3, a new draft proposal will be submitted that can resolve one of the most difficult issues of the "divorce proceedings".
Officially, this project has not yet been made public, but journalists have learned some details of this document. The essence of all innovations is reduced to minimizing checks at the border, maximally preserving the principle of a single market. As a compromise, Europeans propose to London to introduce customs control, which will be carried out in a very peculiar way. For example, Barnier suggests using the post-codes on containers and goods boxes to reduce customs checks and bureaucratic procedures. The market was optimistic about this idea, as Brussels for the first time showed such flexibility on such a difficult issue.
Therefore, today, when one of the British influential newspapers reported that Theresa May would reject the sounded proposals, the pound lost the conquered positions and sank to the bottom of the 31st figure. In addition, today, the main theses of the premiere article for one of the German newspapers were delighted. In her publication, May demanded that Brussels make real concessions in the negotiations, because, in her opinion, London "has significantly improved its position", and now, it expects a similar step from its European counterparts. In particular, the prime minister believes that in the forthcoming negotiations on the establishment of a free trade zone, the members of the European Union should treat Britain in the same way as they do to third countries. Whereas now, according to May, Brussels is making demands for London that are not available in similar trade negotiations with other states.
In other words, the British prime minister's position remains quite demanding for Europeans, despite her renewed "pro-European" scenario of subsequent relationships. Last week, May, in an ultimatum, defended her plan in the British Parliament: "Either you accept my plan or Britain will generally remain without any deal," she told the deputies. I believe that with the same uncompromisingness, she will defend her intentions in Salzburg, where the informal EU summit will begin tomorrow. Certainly, the British have certainly reserved some "gaps" for compromise maneuvers, but May is unlikely to agree on key positions. Therefore, if the insider information on the non-acceptance of the European project on the settlement of the Irish border problem is confirmed, the pound will significantly fall in price throughout the market. After all, in this case, the whole negotiating process can collapse like a house of cards.
Thus, the encouraging statements of the main negotiator from the EU Michel Barnier and the optimistic comments of his British counterpart Dominic Raab can be leveled by the categorical position of the head of the British government. In this connection, the question arises: why is the southern dynamics of the pound / dollar currency pair so modest in the background of such events?
In my opinion, the market simply awaits confirmation of the information published in the press. The matter is that Theresa May's performance in the Austria Salzburg is expected tonight, where she will voice her arguments on the eve of the most important for the UK summit of the EU. If the prime minister confirms a negative reaction about the European plan for the Irish border, the GBP / USD currency pair will not only fall into the area of the 29th figure, but will also return to a large-scale and prolonged decline. In such conditions, the technical side of the issue is inappropriate to analyze. Today, everything depends on the position of the British prime minister.
The material has been provided by InstaForex Company - www.instaforex.com