Pound is under threat after Brexit impasse

The British pound outperformed the euro and the US dollar after the better-than-expected PMI. However, Brexit deadlock pushed the GBP down.

What happened?

Firstly, the British PMI exceeded all expectations. It turned out 55.3 for Manufacturing PMI and 60.1 for Services. Moreover, earlier the EU PMI came out worse than anticipated: Manufacturing PMI – 51.7 and Services PMI – 50.1 vs expected 52.7 and 54.6, respectively. Positive British and negative European economic indicators led to an enormous drop of EUR/GBP. However, things have changed after the EU and the UK couldn’t reach the agreement over some Brexit issues, especially fisheries and other irreconcilable differences. The EU’s chief negotiator Michel Barnier claimed that “an agreement seems unlikely” and was “disappointed, concerned and surprised”. It seems that both sides are far away from reaching a deal. Therefore, it will definitely require more time to make a deal now.

What does it mean?

The further prolongation of the Brexit deal will weigh more on the British pound. Weeks of uncertainties ahead may drive the GBP lower and lower. Negotiators set the next meeting for October 2. However, most analysts are questioning the possibility of a positive outcome. Perhaps the situation won’t get better without governments’ intervention, and it will take more time than it was initially expected.

Technical tips

EUR/GBP has just reversed from the support of 0.8950. Obviously, most analysts have bearish scenarios for the British pound after totally unsuccessful Brexit talks. If the pair jumps above the high of August 12 of 0.9000, it will rise to the next resistance of 0.9050. In the opposite scenario, if it falls down to 0.8950, the way to the next support of 0.8910 will be open. Follow further news on the GBP!

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Kseniya Medik