Sterling plummets as Bojo’s team remain resolute over Irish backstop
The British pound tumbled to its weakest level against the U.S Dollar since March 2017 on Monday, as the prospect of a Brexit no-deal on October 31st this year seems increasingly likely. Sterling now trades down by nearly nine per cent since the start of the year, which is fairly substantial in terms of foreign exchange moves.
The GBP/USD pair fell below the 1.2200 level earlier this morning, following a standoff between Boris Johnson’s newly appointed hard-line Brexit cabinet ministers and key European Union officials. Financial markets quickly came to the conclusion that both sides are increasingly unlikely to change positions over the Irish backstop issue before the October 31st deadline.
Pro-Brexit members amongst British PM Boris Johnson’s newly formed cabinet have been reportedly steeping-up plans for leaving the EU on October 31st, which will ensure the British economy runs smoothly during the initial transition period. The new Foreign Secretary and former Brexit negotiator, Dominic Raab, has said that the EU must move first on the Irish issue to avoid a hard-Brexit.
Aside from Brexit, sterling faces a tumultuous week ahead, with central bank decisions and monetary policy statements from both sides of the Atlantic. A rate cut from the Federal Reserve may provide a temporary boost for the British pound on Wednesday, although it may be short-lived going into the Bank of England policy meeting on Thursday.
Worsening UK data from the previous month and a series of dovish statements from MPC voting members over the last few weeks may see a notably downbeat policy statement coming from the Bank of England on Thursday, although they are highly unlikely to change monetary policy until at least the October policy meeting.
GBP/USD Daily Mountain Chart ∣ Source：ActivTrader
The GBP/USD pair is under severe bearish pressure while trading below the 1.2350 level, continued weakness under this key technical area may now extend down towards the 1.1985 to 1.1800 levels. If bulls can continue to defend the 1.2100 level the GBP/USD pair may move back towards the 1.2350 resistance level for another key test of demand.
Written by Nathan Batchelor, External Analyst, ActivTrades
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