GBP / USD: The fate of the pound is decided at Downing Street

The British currency is again under the power of an external fundamental background. The breaker can drown a pound or raise it to price highs in a matter of minutes. In recent days, we have seen an increased volatility in the GBP / USD pair, which is due to only one fundamental factor.

This year, the «Divorce proceedings» of Britain and the European Union is experiencing problems again. And although the first stage of Brexit at the end of last year ended successfully, now the parties have come together in a kind of clinch, refusing to make serious compromises. We are talking about two key issues. First, it is the border between Northern Ireland and the Republic of Ireland, and secondly, the customs union. The situation is complicated by the fact that the government of Theresa May is not monolithic in the issue of Brexit. There are both «hawks» and supporters of a softer approach. A similar picture is observed in the House of Commons (lower chamber of the Parliament of the Kingdom). Therefore, information about the intentions of London comes sometimes contradictory, and sometimes radically contradictory.

For example, this morning one of the leading British publications published a sensational news. London will remain in the customs union after 2021, that is, after the transition period. According to journalists, Theresa May plans to inform Brussels of such intentions in the near future. Moreover, according to sources of the publication, the ministers agreed that there would not be a strict border between the Irish. To be more precise, the root cause of this decision was the Irish question. According to published information, London came to the conclusion that if Britain leaves the customs union, then the rigid border with Dublin is inevitable and this fact, in turn, will block the negotiation process with Brussels and lead to the «hard» Brexit without concluding the deal.

Such news caused a stir in the foreign exchange market, but not for long. A few hours after the publication of the above material, a refutation appeared. One of the American news agencies, referring to their sources at Downing Street, said that the government is not going to sound such proposals, and the general situation remains unresolved.

The pound collapsed to local lows. Paired with the dollar, it again tested the 34th figure. But the kaleidoscope of events continued to rotate, drastically changing the fundamental background of the pair. Already at lunchtime, another news agency (already British) confirmed the initial information about the intentions of Theresa May to remain in the customs union, but with a number of reservations that have yet to be discussed with Brussels. The result was not long in coming. The pair GBP / USD jumped almost 100 points, on the emotions of the renewed hopes.

It must be emphasized that all the information published today is of an insider nature and just rumors. But the reaction of the market to such signals suggests that Brexit is the main driving force of the GBP / USD pair. Even the dollar, which now dominates in almost all pairs, is not able to break the bullish pressure, if it is a question of positive changes in the «divorce case».

That is why opening any trading positions for a pound / dollar pair is now very risky. Sooner or later, official London will confirm one of the published versions, automatically refuting the second option. It is impossible to talk about the probability of implementing a scenario. Such information «stuffing» testifies to the ongoing political struggle, especially among the British politic. And as soon as one of the opposing sides takes the upper hand, the pound will follow the announced decision. All other fundamental and technical factors will have a secondary role.

It is worth noting that if London really agrees to stay in the customs union, the British currency will quickly restore its positions, even despite the strength of the Greenback. The positive Brexit news will allow traders to switch to the question of the prospects for raising the interest rate by the Bank of England. At the last meeting, the regulator’s members did not tighten the monetary policy, but at the same time they made it clear that the rate would certainly be raised at one of the next meetings. And since investors do not expect more than one increase per year, it is not so important whether the rate will be raised in June or in August. Therefore, the «pro-European» decision of Theresa May will determine the northern vector of the GBP / USD pair movement not only in the medium-term, but in the long-term perspective.

Thus, now all the attention of traders of this pair is riveted to the rhetoric of officials of Downing Street. If London confirms the European integration intentions, the pound will go to the first resistance level of 1.3665. Otherwise, the pair GBP / USD will finally be fixed in the 34th figure.

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