GBP: Brexit Stuck in a Rut, UK PM May on a Tightrope
Fundamental Forecast for GBP: Neutral
Sterling (GBP) Talking Points:
- EU Summit – same old, same old.
- Storm clouds gather for UK PM May.
The DailyFX Q4GBP Forecast is available to download.
We remain neutral on Sterling in the short-term after yet another failed EU Summit meeting with the Irish border problem the main sticking point. Once again, the EU voiced that negotiations were progressing well but said that the UK must go away and come back with another solution to the hard border if negotiations are to progress. PM May called on the EU to be inventive but left the Brussels summit empty-handed. We did consider turning Sterling negative, but the risk/reward ratio does not favor this stance as yet.
One area of discussion that both sides touched upon was an extension of the transition period – currently ending in December 2020 – as a way of giving the UK more time to find a border solution. This would be a limited extension but would entail the UK continuing to make payments to the EU. This extension is unlikely to find many backers in the Conservative Party and there is already talk that Prime Minister may face a leadership challenge/vote of no confidence over the coming months. As such, Brexit sentiment remains negative.
The UK data calendar is clear next week and market attention will begin to focus on the Autumn Budget at the end of the month and the Bank of England monetary policy meeting on November1.
On Mondays we take an in-depth look at important UK data releases, Brexit and other UK asset market drivers at 10:30GMT in our UK Key Events and Markets Webinar.
GBPUSD continues to slide lower, aided by a mildly-hawkish FOMC statement that fueled the next leg of the US dollar rally. With US interest rates, and Treasury bond yields, rising, a weak Sterling has nowhere to go but lower in the short-term.
GBPUSD Daily Price Chart – October 19, 2018
--- Written by Nick Cawley, Analyst
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