Market Overview

GBP/USD Forecast: Sterling Suffers Another Leg Of Sell-off As UK Cabinet Readies For No-deal Brexit

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  • The GBP/USD is trading at the lowest level since August 31 last year as the UK cabinet said it will meet in September to prepare plans for a no-deal Brexit scenario.
  • With a no-deal Brexit scenario becoming the official strategy, the GBP/USD is likely to be exposed to further selling pressure.
  • The targets for the GBP/USD in the selloff are at 1.2800-1.2750-1.2670.

Sterling is trading down 0.7 percent in the middle of 1.2800s against the US Dollar after the news of the UK government readying the meeting for mid-September to prepare plans for a no-deal Brexit scenario. 

The news of no-deal Brexit weighs on Sterling sending it to the lowest level since August 31 last year and coupled with earlier comments of the outgoing Monetary Policy Committee (MPC) member Ian McCafferty who added to the no-deal Brexit fear in public debate together with dovish monetary policy outlook. 

McCafferty said that no-deal Brexit would cause short-term economic disruption and that the market expectations for a couple of rate hikes during the next two years are acceptable. The August Inflation Report projections were conditioned on the Bank rate rising from 0.5 percent before this month's meeting to 1.0  percent by Q1 2020 and then edging higher to 1.1 percent by Q3 2021.

Although Ian McCafferty is an external Monetary Policy Committee member who is leaving the MPC at the end of this August, his hawkish views are well known as he was voting for a rate hike since March until the Bank of England raised the Bank rate to 0.75 percent last week delivering dovish monetary policy outlook. 

The Brexit related uncertainty has been voiced repeatedly over the course of past few days with the Bank of England Governor Mark Carney sending a warning signal to business and the financial markets on Friday last week saying that the uncertainty related to Brexit negotiations is “uncomfortably high” and the UK Trade minister Liam Fox said on Monday that a no-deal Brexit has a 60 percent chance of happening.

Brexit uncertainty and the lack of economic stimulus both weigh on Sterling that broke 1.3000 psychological level this week and after the news of the UK government readying itself for no-deal scenario it easily broke below 1.2900 and reached the target of 1.2870, representing 61.8 percent Fibonacci retracement of the uptrend from a post-Brexit low of 1.1940 to 1.4373. With the no-deal Brexit scenario becoming the official strategy, the GBP/USD is likely to be exposed to further selling pressure as it is trapped in the downward sloping channel. Technical oscillators including Momentum and the Relative strength Index pointing downwards and after reaching a near-term target, further selling is seen taking GBP/USD towards 1.2800 before testing 1.2750 and ultimately reaching 1.2670 representing 23.6 percent Fibonacci retracement of a post-Brexit slump from 1.5020 to 1.1940 on the daily chart.

GBP/USD daily chart

gbpusd_daily_chart-636693310238879277.png

Posted-In: FXStreetNews Eurozone Forex Markets

 

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