- The GBP/USD is trading little changed on the downside in mid-1.3100s amid Brexit stalemate.
- The UK government has a deadline until Sunday-next Monday to conclude Brexit negotiations before the vote in House of Commons on Brexit deal.
- The Bank of England officials acknowledged future monetary policy tightening with Brexit representing the main risk to the economic outlook.
The GBP/USD is trading little changed on the downside at around mid-1.3100s amid Brexit stalemate while the Bank of England officials confirmed that small monetary policy tightening would be needed in case of smooth Brexit, confirming the official stance of one rate hike a year communicated by Bank’s Inflation reports last November and this February.
After rising to 1.3351 on February 27, the GBP/USD is in a corrective move lower with the key Brexit vote planned for Tuesday next week. As the deadline for the official departure of the UK from the European Union nears (29 of March), the clock is ticking up for both the UK government Brexit negotiators to deliver improved Brexit deal and members of the UK parliament to approve the agreement. The chances of delayed Brexit are rising with the FX market pricing in the probability in higher GBP/USD rate.
The Bank of England external Monetary Policy Committee member Tenreyro said on Thursday that the disorderly Brexit is more likely to require loosening of monetary policy than tightening.
It is easy to envisage other scenarios requiring the opposite response. Commenting on FX moves Tenreyri said that Sterling would likely appreciate after a smooth Brexit, which would limit inflation pressure with a small amount of tightening over the next 3 years after smooth Brexit.
Complementing the view, the Bank of England Monetary Policy Committee member Michael Saunders said late on Wednesday that it is possible that monetary tightening might be needed in the future, but does not mean we need to tighten now.
Technically the GBP/USD is in a corrective move lower since peaking at 1.3351 on February 27.
The technical oscillators including Momentum and the Relative strength index are flattening out while Slow Stochastics made a bearish crossover within the Overbought territory and it is sliding lower. The most important technical feature though is the golden cross of the 50-day moving average crossing over the 100-day moving average (DMA). The golden cross is a strongly bullish technical signal that is expected to push Sterling higher long-term. In the short-term, the GBP/USD though is in corrective mode around mid-1.3100s before testing 1.3100, previous cyclical low. On the upside, the immediate target is at 1.3390 representing 61.8% Fibonacci retracement of post-Brexit recovery from 1.1800 to 1.4374.
GBP/USD daily chart
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