The pound-dollar pair reached the middle of the 25th figure - the last time the price was at this level a few months ago, namely in July, in the wake of yet another optimism regarding Brexit's prospects. Today's pair growth is also associated with the "divorce process". Despite the continuing uncertainty, encouraging signals are coming to the market that reduce the risk of a "tough" scenario.
It is necessary to immediately warn that the parties have not yet reached a clear breakthrough in the negotiations: the growth of the British currency is based only on the comments of top officials and politicians. Over the past three years, traders of GBP/USD have repeatedly passed through these stages of the negotiation process. This cycle is well known to investors - at first, London and Brussels declare mutual intransigence, followed by a period of "thaw" when the parties hint at a compromise. But in the end, the situation comes to a standstill once again, and market participants are forced again to observe this vicious circle, trading in conditions of increased uncertainty.
Given the background to this issue, one should not be surprised at the temporary optimism of traders. The parties are talking about compromising again, and this fact pushes the pair up to local maximums. The immediate reason for optimism was the comments of the head of the European Commission, Jean-Claude Juncker. Without going into details, he said that a long-suffering deal could still be concluded before the "X-hour," that is, until October 31. Moreover, on Wednesday, Junker took a diametrically opposite position - he spoke with the same confidence that the risk of "hard" Brexit is increasing every day, since Britain does not provide Brussels with alternative options for the back-stop mechanism.
However, there are indeed certain shifts in the negotiation process. Just yesterday, the British Commission finally received written proposals from the British side on the Brexit issue. As the EC spokeswoman clarified, on the basis of these documents, the negotiations will resume again in the coming days, and whether Juncker's optimism is connected with this fact or not is unknown. Nevertheless, the presence of some progress on this issue provides strong enough support for the GBP/USD pair. The pound is very sensitive to the Brexit topic, and any more or less reliable news regarding its prospects provokes significant volatility. You can imagine the price fluctuations of the pair at the conclusion of the transaction, if only cautious assumptions of the European politician allowed the pound to grow by more than 100 points.
Generally, the GBP/USD pair has been showing an upward movement (albeit with deep downward pullbacks) since the beginning of September - that is, from the moment that the deputies of the House of Commons obliged the prime minister to agree on the next Brexit postponement, if the government fails to conclude a deal that the parliamentarians approve. And although experts are still discussing Johnson's possible maneuvers (appeal in court, direct disobedience to the law, interpretation in their favor, etc.), these scenarios still seem unlikely, even though they cannot be completely excluded, given the odiousness of the current head of the cabinet.
The pound received some support yesterday following the meeting of the Bank of England. In this case, traders were guided by the thesis: "absence of bad news = good news". Despite the general suspicion of the regulator, the Bank of England voiced a rather restrained position - the market clearly expected a more "dovish" mood, especially after crushing data on inflation growth in August. In addition, market participants drew attention to the distribution of votes for maintaining the rate - "9-0-0". This suggests that all members of the Committee were in favor of maintaining the rate, and none of them voted for its reduction. This fact, which under normal conditions would have been simply ignored by traders, supported the British currency.
In general, the September meeting of the Bank of England turned out to be quite faceless, although the regulator's members focused on the risks associated with a slowdown in inflation this time. According to published forecasts of the Central Bank, inflation will remain below the target two percent level at least until the end of this year. At the same time, the Central Bank emphasized that if the uncertainty in the Brexit issue continues, inflation will slow down significantly. The regulator also slightly reduced its forecast for GDP growth in the third quarter to 0.2% (from the previous value of 0.3%). But overall, according to the Bank of England, the British economy is still growing, despite the slowdown.
Summarizing the previous meeting of the English regulator, two more points should be highlighted. First, the Bank of England emphasized that the reaction to the "hard" Brexit will not be automatic - relatively speaking, when the country leaves the transaction on October 31, at the November meeting, the regulator will not headlong to lower the rate. At the moment, all forecasts of the Central Bank are based on the assumption that Brexit will take place according to the "soft" scenario. In this case, according to the Central Bank, the regulator will be able to "gradually increase the interest rate."
In other words, it all comes down to Brexit - both the prospects for the pound and the prospects for monetary policy. In the meantime, the resistance level for the GBP/USD pair is around 1.2600 (the upper line of the BB indicator on the daily chart). The next (strongest) level is much higher - at around 1.3000 (the lower border of the Kumo cloud, which coincides with the upper line of the BB indicator on the weekly chart). At the moment, this target seems unattainable, but if London and Brussels continue to demonstrate their willingness to conclude a deal, the pound will quickly rise to the indicated levels. Otherwise, the pair will return to the framework of the 23rd figure.
The material has been provided by InstaForex Company - www.instaforex.com