GBPUSD Price Volatility Expected Ahead of Potential Brexit Showdown
Sterling (GBP) Talking Points:
- Sterling’s recent uplift may come to an abrupt halt.
- PM May’s leadership may be challenged.
The DailyFX Q3 GBP Forecast is available to download.
UK Politics May Shatter Sterling’s Calm
The weekly Prime Minister’s Questions Time in the House of Commons today, between 12.00pm and 12.30pm, is likely to be a raucous affair as Conservative rebels gather to question the PM on the latest Brexit negotiations. According to news sources, around 50 members of the European Research Group (ERG) could oppose PM May’s Chequers plan and may submit letters of no confidence in the Prime Minister, forcing a new leadership election. Hard-line Conservative Brexiteers believe that the Chequers plan doesnot go far enough and that an improved version of the Canada deal is better for the UK.
This internal-turmoil comes at a time when Sterling has been moving higher, driven by a more conciliatory tone from the EU over future trade between the EU and UK. After hitting 1.2660 in mid-August against the US dollar, GBPUSD has pushed back above 1.3000 and continues to build a base, despite a strong US dollar. Two-year US Treasuries currently yield 2.74%, a decade high as the Fed limbers up to raise interest rates yet again later this month.
GBPUSD Daily Price Chart (March 6 – September 12, 2018)
IG Retail Sentiment data show that retail traders are 68.2% net-long GBPUSD giving us a bearish contrarian trading bias.
Bank of England and US Inflation on Thursday
The Bank of England is expected to leave all monetary policy settings unchanged on Thursday but may well give the market their updated view on Brexit negotiations and preparations. BoE governor Carney extended his tenure this week by another six months until January 2020, which should help stabilize Sterling, but US data later in the session may weigh. US consume price inflation has been running near 3% for the past three months, despite recent interest rate hikes. Any further price pressure should see the market firm up expectations for further interest rate hikes in 2019, boosting the US dollar further.
--- Written by Nick Cawley, Analyst
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