GBP/USD: Is Brexit an ally or an opponent for the pound?

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The pound is facing a problem again – will Brexit be an opponent that will hinder its growth or will it be an ally that can help discover new opportunities? Experts believe that the role of Brexit is not only limited to the pound’s negativity. Rather, it could also be an impulse for its positive dynamics.

The Brexit deadline had a controversial impact on the pound. It should be noted that the deadline for agreeing on a transitional period between London and Brussels ended yesterday. The pound was growing steadily up to this point and even took the lead in trading during the middle of the week. However, it lost the majority of its share yesterday, being in a state of uncertainty ahead of trade negotiations with European leaders. An additional negative factor was the introduced tightening measures of the British authorities, relative to the second wave of COVID-19.

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A pause in trade negotiations also worsened the situation, which affected the pound again. Today, it continues to suffer losses due to the growing cases of COVID-19, and against the background of stalled negotiations with Brussels. Thus, European leaders are seriously concerned about the lack of progress on critical issues related to economic engagement with the UK.

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The strengthening of the conflicting issues hindered the growth of the pound: it fell to 0.4% to 1.2961 on Wednesday and to — 0.7%, to a critical low of 1.2910 on Thursday. Moreover, the decline of the GBP/USD pair continues today, entering a downward spiral which hasn’t stopped yet. It started at the level of 1.2890 this morning and currently moves around the range of 1.2893-1.2894, making traders hopeful for a small upward movement.

On the other hand, analysts are worried for a potential negative scenario given that both parties will not manage to reach an agreement. In such circumstances, the UK has to talk to other countries of the Eurobloc under the rules of the WTO, and this will cause a significant blow to the European and British economies. Such a result will be disastrous for the GBP: the national currency will be under the pressure of a strongly negative impact.

A stumbling block for London and Brussels is still the point related to the regulation of fishing. The market expects concessions from the EU on this issue, and the UK is expected to compromise on a number of trade positions. Many experts are optimistic and believe that the parties will be able to reach an agreement in the near future. According to them, the continuation of negotiations is a good sign for the pound, but in order for the pound to strongly rise, their successful completion is necessary.

Yet, some analysts say that Brexit may be the next step for the price of the pound to conquer new peaks. Despite the number of contradictions between the UK and the EU, it does not prevent the pound from choosing a favorable direction. Experts believe that Brexit may take on an unusual role – to become a driver of the pound’s growth in the medium and long term.

The material has been provided by InstaForex Company — www.instaforex.com

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