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Sterling Rises as Traders Bet on a Brexit Deal
The sterling has been one of the
most watched currencies this year. This is because of the ongoing Brexit
uncertainty in the United Kingdom. As you recall, Theresa May has been
negotiating a Brexit deal with the European Union for the past two years. The
deal was supposed to make it easier for the two sides once the UK divorces from
the EU on March 29. On the one side, the EU was incentivized to make the
negotiations tough, which would prevent other EU members from leaving the
union. On the other side, the UK wanted a good deal.
To compound issues, the UK
parliament is divided, with both sides disagreeing on key issues. The
opposition party has always been pro-EU while most members of Theresa May’s
party have been opposed to the union. This combination made it very difficult
to have a good path towards Brexit.
Last week, Theresa May presented
her proposal to parliament for approval. As expected, the bill was brought down
by the members, who disagreed with her on the issue of backstop. She also
survived an ouster bid brought by the opposition party.
Yesterday, she made another
speech, presenting her plan B for the deal. In the plan, she announced that she
will move on negotiating along party lines as her previous plan of doing
bipartisan negotiations failed. It is impossible to see how a deal along party
lines will pass. However, a silver lining is that most members don’t want to
leave the EU without a deal. This raises the possibility of having a deal made
before the exit date.
On the one-year chart below, the
GBP/USD pair has moved a bit higher as investors place their bets on a deal
being made. Last week, the pair reached the important milestone of 1.3000. That
price was along the upper band of the Bollinger Bands. There is a likelihood
that the pair may continue the upward trend and test the important resistance
level of 1.3200.
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