Sterling sinks to July low as EU-UK divisions escalate
The British pound fell sharply today, continuing a sharp decline that started on 1 September. The currency declined after the eighth round of Brexit talks ended without a deal, increasing the likelihood of a no-deal Brexit. The deliberations were partially hampered by the decision of Boris Johnson’s administration to pass an internal market bill that intentionally breaks international law. The EU has threatened to sue the UK and received support from America’s Democrats who oppose a physical barrier between Northern Ireland and the Republic of Ireland.
On a positive note, the UK announced a landmark free trade agreement with Japan. The agreement means that UK companies will be free to export their products to Japan. Other positive news came from the Office of National Statistics (ONS), which released positive economic data. The bureau said that the UK economy expanded by 6.6% in July as the country continued to recover. In the same month, construction output, manufacturing production, and industrial production rose at a faster rate than what analysts were expecting.
The euro rose against key currencies as traders reacted to the interest rate decision by the European Central Bank (ECB). In the statement, the bank left rates and QE unchanged. In the press conference, Christine Lagarde talked about the emerging growth of the economy but she did not address the stronger euro. As such, analysts expect that the euro will continue to strengthen against key peers. Meanwhile, data from Germany showed that the headline CPI rose to 0.0% from the previous -0.1%. The harmonised CPI declined to -0.1% from the previous 0.0%. Elsewhere, in the United States, data showed that the headline CPI increased to 1.3% while the core CPI rose to 1.7% in August.
The EUR/USD pair rose to an intraday high of 1.1875. On the four-hour chart, the price is above the lower side of the ascending channel. It has also moved above the 50-day and 100-day exponential moving averages. It is also above the dots of the Parabolic SAR while the Average True Range (ATR) has continued to rise. Therefore, the pair is likely to continue rallying as bulls aim for yesterday’s high of 1.1920.
The GBP/USD pair dropped to an intraday low of 1.2760, which is significantly below the 1 September high of 1.3480. On the four-hour chart, the price has moved below all the short, medium, and longer-term moving averages while the RSI has moved to the oversold level of 30. Similarly, the signal and main line of the MACD have moved significantly lower. Therefore, it seems like the pair will continue falling as bears target moves below 1.2700.
The GBP/JPY pair rose slightly today after the UK and Japan announced a free trade deal. The pair is trading at 136.26, which is slightly higher than yesterday’s low of 135.55. On the daily chart, the price is along the 50% Fibonacci retracement level. It is also below the 100-day and 50-day simple moving averages and along the lower line of the Bollinger bands. The DeMarker has also fallen from the overbought level of 0.90 to the current level of 0.40. Therefore, the path of least resistance for the pair seems lower.