23.10.201900:45 Forex Analysis & Reviews: Pound awaits reboot

The British currency has been storming over the past few days. The pound is experiencing significant congestion during meetings related to the UK exit from the EU. A number of analysts believe that the sterling expects strong volatility.

The dynamics of the currency of Britain is not too stable. It is undermined by uncertainty around Brexit, although there have been positive developments in this process recently. Recall, the British Parliament held another debate last Saturday, but they did not clarify the issue of Brexit. British Prime Minister Boris Johnson managed to get the approval of a new deal on the country's exit from the EU. He urged lawmakers to vote for the new document, arguing that his deal with the EU would provide a "real Brexit" capable of restoring national sovereignty.

However, in the future B. Johnson was disappointed, because the deal that was adopted in Brussels, did not receive the approval of the British Parliament. It was agreed that the final decision is possible only after a thorough study of the related legislation, which takes time. According to experts, in this way lawmakers are trying to promote the law, according to which B. Johnson will have to extend Britain's membership in the EU until January 31, 2019. This time, the prime minister obeyed the decision of Parliament, but sent a letter to Donald Tusk, President of the European Council. In it, the politician asked EU leaders to reject his own petition, arguing that further delay harms the interests of the UK and the European Union.

Experts noted the failure of the next Brexit deal, which could not but affect the pound. The sterling reacted by falling during the Asian session on Monday, October 21. The British currency strengthened again during the European session, pulling the GBP/USD pair behind it. Yesterday, the pair updated a five-month high, rising to 1.2982. After a while, the GBP/USD pair reached the level of 1.3011. On Tuesday morning, October 22, the pair traded within 1.2964–1.2965.

The long epic with Brexit drains the strength of politicians and negatively affects the dynamics of the pound. Analysts do not rule out that EU leaders will meet the request to postpone Brexit to a later date. A new review of the deal is planned for today in the UK. If B. Johnson manages to convince the Parliament, the country will have a potential chance to leave the euro bloc on November 1, 2019. According to experts, a small advantage is still observed on the side of the prime minister, and the market perceives the current version of the deal more positively. The result of Monday was the rise of the GBP/USD pair to 1.3000. Recall that the last time the British currency reached this level was in May of this year.

Due to the uncertainty around Brexit, the market was again at a crossroads. At the moment, all options are relevant: from a second referendum to the rejection of Brexit as such. In such conditions, another surge in volatility of the British currency is possible, experts remind. They point out two main ways in which the locomotive of British-European history can move by pulling a pound:

1. If Parliament approves the current agreement presented by B. Johnson, sterling will receive some support. Recall that the British currency has already done an impressive rally. This reduces the potential for its further strengthening from the current point to a high of 1.3200.

2. If Parliament continues to reject the prime minister's initiatives, the pound may show a downward trend. Experts do not rule out a full return to the starting point, that is, the whole cycle of negotiations and approvals can begin anew. This can permanently unsettle the British currency and throw it to positions near 1.2200, from where the pound rally started 11 days ago.

According to experts, the immediate growth potential of the pounds is now at around 1.3600. On hand to the pound is the fact that the likelihood of a "hard" Brexit has significantly decreased, and this supports the British currency. Now the GBP/USD pair is trading in the range of 1.2952–1.2954, showing a downward trend after the morning rise.

At the moment, the pair fell to a critical value of 1.2935, but it restored lost positions in a short period of time.

Many experts expect serious changes in the dynamics of the pound, a kind of reboot. They believe that cardinal changes cannot be avoided for sterling, the only question is how intense they will be. Goldman Sachs currency strategists, focusing on reducing the risks of the hard Brexit by 5%, are considering two scenarios:

1) If the UK leaves the EU before October 31, 2019, if a deal is concluded, the GBP/USD pair will reach 1.3500;

2) The UK exit from the euro bloc is postponed, and London receives a deferment from Brussels. In this case, the GBP/USD pair will go down to the level of 1.2600.

In any case, it will not be easy for the pound. Analysts hope that the next reboot of the price will not unsettle the British currency too much. Previously, the pound showed amazing stability, sometimes rising like a phoenix from the ashes. This time, experts also rely on its ability to resist negative factors.