Date: 09 Oct 2019

The British pound came under pressure across the board on Tuesday, as Boris Johnson’s new Brexit proposal faced rejection from EU negotiators. British Prime Minister Boris Johnson was reportedly preparing for exit talks to end in failure, ahead of the next European Union Summit on October 17th.

Antipodean currencies made substantial gains against the British pound, while the pound tumbled below the 1.2200 level against the U.S Dollar on the news. The FTSE100 moved away from its inverse relationship with the British pound, as it broke its three-day winning streak over the latest bearish Brexit developments.

The British pound was also weighed down data by weaker monthly British retail data, and a report from the Institute of Fiscal Studies which predicted that the United Kingdom’s budget deficit could soar after Brexit. The report also noted that the country could return to austerity measures after the UK leaves the European Union, as the UK budget deficit soars.

The negative assessment of Boris Johnson’s new Brexit deal from EU negotiators suggested that a Brexit compromise is still far from being reached. With negative Brexit news weighing on sentiment, expectations are extremely low that a deal could be struck by October 31st.

Going forward, the next major Brexit events are the upcoming EU Summit and British PM Johnson’s battle to avoid another Brexit deadline extension, which would be deeply unpopular amongst Brexiteers. PM Johnson has to bypass the Benn Act in Parliament to avoid another Brexit extension. A further extension could see PM Johnson’s popularity waning, and boost the chances of an upcoming general election.

 

GBP/USD Daily Candlestick Chart | Source: ActivTrader

GBP/USD Daily Candlestick Chart | Source: ActivTrader

 

The British pound is under pressure against the U.S Dollar in the short-term while trading below the 1.2275 level. A further decline under the 1.2200 support level would likely see traders increasing bearish bets towards sterling. A sustained breakdown under the 1.2000 level could prompt a further decline towards the 1.1800 level.

 

Written by Nathan Batchelor, External Analyst, ActivTrades

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