British Pound Dominates Forex Market
Although it is strictly true to say that the major movements in the Forex market this week have been driven by the U.S. Dollar, as is typically the case, the major currency which is in the deadlines and which is moving with the greatest strength and volatility is the British pound. Strong movement in the British Pound also has a knock-on effect on the Euro, and we are seeing that happen too. The fluctuations in the relative value of the Pound are driven by politics – more specifically, the ongoing British exit from the European Union – and not so much by regular economic data releases, although today’s very poor Retail Sales data did seem to contribute to the decline we have already seen since the late Asian session.
The GBP/USD currency pair is reaching a crucial point, as I noted in my analysis earlier today. The price is trading below the psychologically key level of 1.3000 for the first time this year, in fact for the first time since September 2017, which is a new 10-month low price. There are a couple of important support levels not far below, notably 1.2950, and sometimes breaks of key levels are used to “sucker in” dumb money to provide liquidity just before a strong reversal.
Its all caused by the fact that last week saw the British government set out the outline of its final offer to the European Union on the exact terms which will apply after the U.K. leaves the European Union in March 2019. Both the governing Conservative Party and the country generally are hopelessly split on the issue. Remainers are pushing hard for a deal that maintains as much of a de facto continuing membership as possible, while Leavers want (or are prepared to see) a “no deal” exit. The initial terms were seen as a betrayal by many Leavers in the Conservative Party, so they are fighting back, and once again the terms of Britain’s exit are up for grabs. It currently looks more likely that Britain will leave the Customs Union any may even exit without a deal at all, and this is causing both the Pound and the Euro to fall, as markets generally see it as bad for business. Beware of watching political developments too closely though, because both sides are using sabotage against the Government and voting in Parliament just to try to make business difficult for the Government.