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The British currency put a spurt on and took the lead in the rally of G10 currencies. So, by March 22 the pound is going to show an outstanding performance. The UK economic calendar is rather eventful this week, as it includes the reports on inflation rate, labor market conditions and retail sales. What is more, the pound sterling will come under the influence of the BOE monetary policy meeting as well as another Parliamentary vote on Brexit plan suggested by Theresa May. If the plan is approved, London will have three months to find a compromise with Brussels. Otherwise, uncertainty will persist for much longer and political risks will increase.
Dynamics of the British pound
The decision of the British policy makers can be crucial for both the pound sterling and the euro. If the term of leaving the EU is prolonged for more than three months, then the United Kingdom will take part in the European Parliament election that is due to be held in May. Surely, eurosceptics will use Britain's complicated relations with Brussels in the election campaign. They may refer to the fact that the European stance is too harsh and puts strain on other countries in their free choice of leaving or staying in the union. If political risks increase, it will exert bearish pressure on EUR/USD.
A shift in the political framework contributed to the pound's rise. Though the Parliament had been rejecting Theresa May's ideas for long time, its decision to prevent the country from leaving the EU without a deal was perceived by investors as lawmakers' intentions to avoid recession. As a result, the GBP/USD pair soared to its highest levels since June 2018. Nevertheless, a fall in the differential of long-term and short-term volatility of the pound sterling indicates that difficult times are ahead. According to UBS experts, EUR/USD can plunge to 1.29 and below, so the bank recommends its customers to buy only if its quotes fall to 1.24.
Experts from BNP Paribas, on the contrary, say that most of the negative factors have already been taken into account, so investors are better to watch for buying opportunities. The bank noted that the British currency is undervalued. Speculators have been increasing the volume of their sell deals so far this year, which led to a decline in the BNP Paribas indicator from +10 to -33 in the range between +50 and -50.
Though Bloomberg doubts that the Bank of England will take any decisive steps, investors' concerns over the possible negative impact of Brexit may result in the pound's correction. The MPs' decision to prevent leaving the EU with no deal led to a rise in odds of the repo rate hike from 30% to 40% in 2019 which is a bullish factor for the pound.
As for the technical analysis, the daily chart of the analyzed pair shows that the price continues moving towards the target of 1.35 according to the Wolfe Waves pattern. In order to resume the rally, bulls need to breack the resistance at 1.3385.
GBP/USD daily chart
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