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GBP: Supported For Now But Politics Hold Sway

Talking Points:

  • GBP remains under downward pressure but further losses may be avoided if talks remain civil.
  • A lull in Brexit hostilities is helping the British Pound
  • Next month’s BOE meeting is likely to see a 0.25% interest rate hike.

Fundamental Forecast for GBP: Neutral

We remain neutral on GBP but would likely turn short-term bullish if the recent cessation of EU/UK hostilities remains in place.

Thursday’s EU Summit leaders meeting saw a slight change in tone in the war of words between the EU and the UK, most notably over the ‘divorce bill’ with the EU saying that while insufficient progress had been made so far to move on to trade talks, they would begin ‘internal preparation’ for the second round. Markets took this as a positive message from the EU that a potentially damaging ‘no deal’ was gradually being removed from the negotiating table. While negotiations are still expected to prolonged and potentially fractious, this

move is giving GBP an upwards boost.

Markets are also looking forward to the next Bank of England policy announcement on November 2 with expectations running high of a 0.25% interest rate hike. Next week’s final 3Q y/y GDP release is expected to show growth of 1.5%, but any downgrade of GDP, coupled with this week’s 3% inflation print may stay the BOE’s hand in hiking rates until the December meeting.

Chart: EUR/GBP Daily Time Frame (May – October 20, 2017)

GBP: Supported For Now But Politics Hold Sway

On the above EUR/GBP chart there is fibonacci support at 0.8927 ahead of 0.8810 while any GBP weakness could see an attempt at 0.9072.

Chart by IG

And you can check out our latest Q4 trading forecast for Sterling here.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1