Even if you don’t follow the economic news or any news reports at all, you’ve heard about the biggest breakup in modern history – the UK leaving the EU for good. AMarkets have shared their thoughts on this eternal topic in an exclusive piece for LeapRate.
Brexit is not another run-of-the-mill separation deal, because two parties couldn’t agree on the terms for many months. But the morning news of Thursday, October 17, has delivered the long-expected announcement from the UK and EU representatives about the inevitable breakup.
One of the AMarkets leading analysts Dmitriy Aleksentsev, along with the international financial community of traders, investors, and regulators, has been watching the dramatic fall of the royal currency – the British pound sterling (GBP). Further, he explains why this happened and what may happen in the next few weeks until the end of 2019.
The key points you ought to take into account before diving into any analytics about the Brexit deal and GBP prices:
- On Thursday, October 17, during a two-day summit in Brussels European Commission President Jean-Claude and British Prime Minister Boris Johnson confirmed during their sojourn announcement that the United Kingdom and European Union finally reached the agreement on the Brexit deal;
- However, this statement doesn’t mean Brexit will happen till the end of 2019 because, for now, the Democratic Unionist Party (DUP) has no intention to support any Brexit deal offered by Boris Johnson;
- But the financial markets don’t wait, traders reacted negatively to this news making the British pound drop in price drastically. And it kept going down;
- The growing tension after the announcement on Thursday resulted in a deferred approval of Boris Johnson’s Brexit pact on Saturday, October 19. Apparently, the Westminster situation will remain fluid, as well as the rates of the major British currency. The international Forex markets reacted by upping the pound to $1.2973, but this short rise only partially covered the previous drastic fall in Asian markets;
Also let’s not forget about the so-called “implementation period” (March 29, 2019 – December 31, 2020) that will undoubtedly affect the GBP rates. Provided as a buffer against social and economic changes due to the UK withdrawal deal, this period will create the specific sentiment that has to be considered, especially by fundamentalists.
According to The Guardian, GBP has the biggest drop against USD because officially the Brexit vote could happen until the end of this October. The most important question now – will it continue to go down or some good expectations are still left?
What do European Forex analysts think about the future of the GBP/USD pair?
Not just the AMarkets analysts but also the experts from other brokerage companies. For instance, the analyst Stephen Innes (APAC market strategist) believes that GBP will hit the critical level on the day when the DUP refuses to vote for the Brexit deal. However, not just ten DUP votes can bring the darkest times for the British pound sterling. Consider the critical speculation driver of pound immediately after peaking over 1,300.
Due to this scenario, the pound surged to $1.26 after a nearly five-month high. The same picture is in another popular currency pair – GBP/EUR.
The Swiss Bank UBS economist Dean Turner predicts that general election and a Brexit extension will probably happen sooner than later. He forecasted the scenario for the pound traded between $1.25-$1.29.
The international forecast for the GBP/USD pairing
Let’s focus on the US reports affecting the Forex markets and the GBP/USD pair in particular. Jerome Powell as Fed Chair gave a few hints about the upcoming interest rate that will be revealed on October 30.
The global growth of GBP/USD rate has been quite slow due to the US-China Trade Wars. Traders should be concerned due to the latest news on Brexit. Along with the upcoming interest rate cut, it is worth expecting the increased volatility in GBP/USD exchange rates.
Despite the outcome of the British Parliament’s voting, GBP will have to face many economic challenges in the upcoming 14 months, being specifically vulnerable during the “implementation” period. However, the long-term forecast is more optimistic than pessimistic since the Bank of England still makes solid monetary policy decisions. It’s obvious that the GBP’s value will be more determined in the post-Brexit United Kingdom.