Home > The Bank of England, Brexit, and the British Pound – An Update

The Bank of England, Brexit, and the British Pound – An Update

October 22, 2020 By Mircea Vasiu

The British Pound (GBP) rallied the most in six months yesterday. The reason? Unexpectedly, a Brexit deal is back on the table. 

Last week’s EU Summit had two major things on its agenda. One was the coronavirus pandemic and how the EU member states plan to fight the second wave. Another was Brexit and the ongoing negotiations with the United Kingdom.

It is truly a shame that four years were wasted so far from the initial Brexit referendum, and there is no agreement between the two parties so far. The self-imposed deadline that the United Kingdom had expired last week. Also, December 31st is another important deadline.

However, so many deadlines were crossed these years that we do know only one thing – the negotiations will not stop until a deal is reached. It is in the interest of both parties to make the most of the current situation.

Deal Back on the Table

The announcement that the European Union and the United Kingdom will re-engage in negotiations triggered a massive GBP rally. Not only the GBPUSD, but all the GBP pairs were affected.

For the GBPUSD, the 1.30 acted as the line in the sand. Ever since cable recovered from the coronavirus dip in March, the 1.30 acted as a pivotal level. The same is valid for the EURGBP and the 0.90 mark.

Perhaps the Brexit negotiations are more visible on the EURGBP chart. More precisely, every time the cross surged above 0.90, the no-deal scenario dominated the headlines. On the contrary, any move below 0.9 signaled a possible deal is in the cards.

Moving forward, traders should remember that an exchange rate shows the value of one currency in terms of another. More exactly, if so, far the Brexit news affected the GBPUSD equally as it affected the EURGBP cross, things are about to change.

The U.S. elections are just around the corner, and the GBPUSD rate will react to the news from the other side of the Atlantic, which we cannot say about the EURGBP cross. Therefore, during the week/weeks ahead, look for the GBPUSD to decouple from the Brexit news in some proportions and for the EURGBP cross to express the progress or lack of progress.

A negotiation like Brexit is complex on many levels. Despite the fact that four years have passed, the complexity of it justifies the time it takes to deliver a deal.