GBP: positive outlook

The British pound has been gaining since May 18 and it’s unlikely to stop. What are the reasons behind this?

First of all, the market sentiment has really improved these days as economies are reopening, and the end of the crisis is visible. Another reason is that Brexit talks have been positive in tone, according to UK Chief Negotiator David Frost. Most investors believe that the agreement will be soon achieved in next few months.

However, there is hardly a real progress between the UK and the EU. It’s obvious, that Brexit wasn’t a key problem for quite a long time for both sides. They were mainly focused on mitigating the coronavirus damage on their economies. And now, when rates of new infections have significantly decreased and most companies are back to work, authorities have more time for the Brexit issue. Last week Germany claimed that it would step in Brexit negotiations in autumn. They even set a deadline to reach a compromise – 15 October.

The sticking point is fishing. According to Head of Unit European Commission Stefaan De Rynck, both the UK and the EU have "maximalist" positions and they should get into more detailed discussions “on stocks on quotas, on access to waters and see where the landing zone is on that”.

To sum up, the British pound is moving up on optimistic outlook for Brexit negotiations. Nevertheless, any disputes or tensions between the EU and the UK may put some pressure on the British pound in next months. Anyway, most analysts expect GBP to rise at the end of this year as the real deadline approaches.

Technical outlook

Let’s look at the GBP/USD chart. Now the price struggles to break through the 200-day moving average at 1.26. If it crosses it, it will open doors towards the 78.6% Fibonacci retracement level at 1.2825. The next retracement will be at 1.31. Support levels are 1.25 and 1.23.

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Author: FBS Analyst Team

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