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GBPUSD Outlook Positive After Drop on Concerns About a No-Deal Brexit

GBPUSD Outlook Positive After Drop on Concerns About a No-Deal Brexit

Martin Essex, MSTA, Analyst

GBP price, news and analysis:

  • The British Pound has dropped back to around the 1.30 level after the UK Parliament voted to send the UK Prime Minister back to Brussels to negotiate a better Brexit deal.
  • The EU will likely refuse to concede ground but, while chances of a deal remain, Sterling is unlikely to suffer more heavy losses for now.

Sterling stabilizes around $1.30

GBPUSD has steadied around the 1.30 level after dropping in the wake of a series of votes Tuesday in the Westminster Parliament that ended with a mandate for UK Prime Minister Theresa May to return to Brussels to renegotiate the so-called “backstop” that aims to prevent a hard border between Northern Ireland – which is part of the UK – and the independent Irish Republic.

British lawmakers also voted to rule out a no-deal Brexit but the motion was not binding and the negative EU reaction to May’s demand for “legally binding changes” to the divorce deal mean that, if anything, the chances of the UK leaving the EU without an agreement seem actually to have increased.

The EU was adamant that it will not change the deal currently on the table but GBP has stabilized Wednesday and could even advance if both sides decide that to give a little ground is better than a disorderly Brexit.

GBPUSD Price Chart, Five-Minute Timeframe (January 29-30, 2019)

Latest GBPUSD price chart.

Chart by IG (You can click on it for a larger image)

The EU, despite its blunt and dismissive reaction to the British attempts to renegotiate the deal agreed between it and May, has a history of reaching an agreement at the last minute and, while hopes of that remain, a Sterling rally is entirely plausible. In short, a compromise still seems possible, as in the case of the Greek bailout.

A decision by Labour opposition leader Jeremy Corbyn to meet May could also be a positive development, potentially lifting GBPUSD back to the highs of 1.3175, 1.3258 and 1.3299 reached in November, October and September 2018 respectively.

More to read:

Brexit Timeline

Brexit Effect on GBP and UK Stocks

Using News and Events to Trade Forex

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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