FX.co ★ Sisyphean task for the pound: rise vs fall

The efforts of the British currency to overcome price peaks, unfortunately, were in vain. The pound could not hold previously won positions and retreated to the lows. However, market participants do not lose hope for the restoration of sterling.

At the end of last week, the British currency with truly English equanimity prepared a solid foundation for its strengthening. The reason for optimism was signals from Leo Varadkar, the Prime Minister of Ireland, regarding a possible agreement on Brexit. The market seized on this news as if drowning in a straw, evaluating the received signals as "promising". The misinterpretation was facilitated by the comments of Donald Tusk, head of the European Council, who also succumbed to general optimism regarding a possible "soft" Brexit.

The start of the new week was disappointing to traders and investors, although it left a glimmer of hope. The pound, actively moving to the heights, was forced to interrupt the flight. Experts do not exclude that in the near future sterling will again begin to climb, but at the moment they record its retreat from the highs over the past three months. Having almost reached an impressive level of 1.2700 at the end of last week, the pound was exhausted by the beginning of this Monday.

The reason for the next decline in the British currency was a slip in the negotiations on Britain's exit from the EU. The strategy of UK Prime Minister Boris Johnson in the euro bloc is considered unacceptable, despite the reaction of the Irish side. His proposal for a border with Ireland threatens the entire European market, Brussels said. The current situation put the pound on the bandwagon, bringing down its rate by about 0.7%. Earlier, at the end of last week, the pound rose in price against the US dollar by 3.8%, but the current situation has brought all of the pound's efforts into nothing.

According to analysts at the leading Goldman Sachs bank, in the near future the British currency may strengthen from current levels by an additional 2.6%. Currently, the GBP/USD pair is trading in the range 1.2557–1.2559. Experts fear that the British pound might significantly tumble, while maintaining a weak hope for a solution to the situation.

The lifeline for the pound, which at the moment was raising the GBP/USD pair to 1.2577–1.2579, could be the conclusion of a limited free trade agreement, which would help Britain leave the European Union without tough measures by October 31, 2019. Such an agreement would nullify all tariffs between the United Kingdom and the countries of the eurozone, although the question of the Irish border still remains open. Current problems can trigger a downward pound rally, which will be difficult to control, analysts conclude.