The pound has gotten in once again the zone of unpredictability on the eve of the most crucial negotiations in between London and Brussels and the subsequent vote in your home of Commons. For two and a half years from the minute of the historical referendum, the British currency has consistently experienced strong volatility, which as a guideline, on the threshold of the essential phases of Brexit. Now the Briton reacts to the details background regarding the prospects of the settlement procedure. The stakes are expensive: if Theresa May finds a common measure between parliamentarians and the European Union, the deal can be authorized as early as next week. Otherwise, negotiations will drag out for numerous months, and Brexit’s date will need to be postponed to a later date(although May now declines this circumstance). In any case, the coming days for GBP/USD traders will be intense. London and Brussels” exchanged pleasantries “yesterday. The representative of the European Commission said that the European side is ready to think about a possible proposal by the British to hold off Brexit, if only they offer valid factors for this. Downing Street categorically rejected such a circumstance. A spokesperson for the British government said that if the EU revealed a proposition to extend the 50th article of the Treaty of Lisbon (which enables the postponement of Brexit), Britain will say no. In other words, the proposition to postpone the withdrawal of the country from the Alliance is not considered by the parties as a matter of priority – it is rather a backup plan, which will be relevant only if the British parliament fails to elect an updated draft of the deal.
At the minute, the sequence of actions is as follows: on Monday, Theresa May presents her “Plan B” after talking to the leaders of parliamentary associations. Then, she should agree on a renewed handle Brussels if she undergoes considerable modifications on key problems, and proceed to a vote on January 29. In my opinion, the “European” phase of settlements is the most challenging in the procedure of the upcoming contract. On the one hand, the main arbitrator from the European Union, Michel Barnier, said the other day that the European Union is all set for a “more enthusiastic offer.” He did not clarify the significance of his expression, but the general message is apparent: Brussels is all set to sit down at the negotiating table, in spite of its “principled” position concerning the inviolability of the contracts reached. On the other hand, the marketplace questions it.
In this vein, the written appeal of the EU management to the British parliamentarians is a sign, which was sent out to London on the day of ballot on the initial draft of the deal. In this letter, Brussels described its method to Brexit’s main unsolved problem: the regime of border control between Ireland and Northern Ireland after the nation’s withdrawal from the Alliance. The letter did not have the main thing, not even a tip of the arrangement of legal warranties to Britain concerning the time frame of the backstop. Brussels limited itself to the phrase that the European Union would not utilize this program “beyond the strictly needed duration.” This is a rather vague phrasing, which, to name a few things, has no legal force. The European Union has when again verified that it is ready to extend the shift period.
Now, the fact that it is safe to say that this appeal is ineffective. From this, we can make an obvious conclusion that no spoken exhortations of Europeans can convince challengers of May, just legal assurances regarding the mode of action of the back-stop will shift the situation from a dead end. “Are you prepared to go all out in Brussels or not?” is an open concern. That is why today, pessimism has actually gone back to the marketplace concerning the potential customers for the upcoming talks and the pound, in tandem with the dollar, has suspended its development, waiting from the psychologically important mark of 1.30.
If we talk about macroeconomic statistics, then the situation is quite inconsistent as the British inflation reached the predicted level. The core consumer rate index even exceeded expectations, being at the level of 1.9%, while retail sales were clearly disappointed with -0.9% m/m and 3% y/y compared to the forecast of -0, 8% m/m and 3.6% g/g.
Nevertheless, traders actually ignored these releases. Brexit is still a concern for the marketplace. Up until the end of the settlement process, the pound will focus just on this news background. This indicates that it is practically impossible to anticipate the price motion of GBP/USD, since any comment by agents of London and Brussels can turn the cost up or down, depending upon the context. Whereas today, GBP/USD bears can quickly pull the pair to the first support level of 1.2860 against the background of profit taking on the eve of agitated vacations.
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