In a market characterized by tight ranges and little or no volatility, the British Pound (GBP) stood out of the crowd. Last week it dropped dramatically, with Friday’s selloff sending the EURGBP to almost 0.93 while the GBPUSD nosedived below 1.28.
This came in the context of GBPUSD trading close to 1.35 at the end of August, which makes the move lower an impressive one. It all started with the U.K. being ready to break international law for the Brexit divorce, sending a negative message across financial markets. Naturally, the GBP suffered across the board, with investors looking at any spike as just another excuse to sell it.
The Bank of England is due to deliver its monetary policy this week, and so the GBP may find support ahead of it. Until then, GBP pairs found support from an unexpected source – the monthly claimant count number.
August Data Surprised Positively
For August, the claimant count change was supposed to reveal almost 100k new people applying for unemployment related benefits. More precisely, the market expected 99.5k, but the actual came out at 73.7k. Moreover, the previous number released a month ago was revised lower, down to 69.9k from 94.4k. A double positive from the U.K. economy, putting an end to the GBP slide.
However, the pound remains weak. It still trades above 0.92 against the unusually strong EUR and fell aggressively against the safe-haven CHF. It trades more and more like an emerging market’s currency, a characteristic seen for most of 2019 and 2020.
Bank of England this week is unlikely to be a game-changer for the GBP. Instead, the key driver for the pound is the Brexit divorce and how things evolve between the two parties.
After the U.K. announced its intentions, the E.U. retaliated. It made it clear that it will issue its decision about the Euro clearing system (currently in London) by the end of September.
If this game of retaliation continues, the GBP will end up being one of the most volatile currencies on the F.X. dashboard for the rest of the year. If you add to this the upcoming U.S. election, the chances are that the currency market will move on different inputs than economic ones.
For now, the 1.30 level seems to be pivotal in the GBPUSD pair – the most important GBP pair. Expect for the market to keep crossing it until more clarity about Brexit lies ahead.