FX.co ★ No bright prospects for the pound sterling

The pound sterling strengthened against the US dollar and the euro on Monday, which made its position more stable after the fall that occurred with it until the last moment.

The past week has tested the strength of sterling over the past six months. Market participants stopped looking at the currency through rose-colored glasses, which greatly worsened their mood. The pound was particularly suffered after news that a trade deal between the UK and the EU after the former leaves the Commonwealth, may remain without a final conclusion since the parties cannot overcome fundamental differences. Note that the deadline for the agreement is December 2020.

Moreover, the UK made the entire world community nervous after it issued a bill for adoption that potentially violates the provisions of international law. It also concerns certain parts of the agreement on withdrawal from the EU, which was signed at the beginning of this year. The vote on this law is expected on Monday where its fate will be decided. Market participants are closely watching this whole situation, as it can make significant changes in the balance of power in the foreign exchange market. In particular, the first victim may again be the pound sterling.

The EU has already made statements that it is not worth trusting those who violate these obligations initially. This means that if the controversial law is signed in the UK, the trade deal will not take place at all, and the country will leave the Commonwealth without any economic agreements. One can only guess what damage the British economy will suffer in the course of such a turn of events.

It is already clear that the pound has lost almost 4% over the past month only because market participants stopped believing in a positive outcome of all the risks associated with Brexit. And, if the situation does not start to improve, the pound will face even more problems.

The value of sterling was $1.2832 per pound Monday morning. This is 0.3% more than the level at which trading ended on the last business day of last week. However, the value of the currency is still consolidating very close to its minimum values over the past seven weeks.

The pound also slightly strengthened in relation to the euro. By morning it rose 0.2% and the current level is 92.40 pence per euro.

The level of currency volatility for the month is again at its maximum values. This indicates that market participants are preparing for possible fluctuations in the value of the pound, which may begin in the near future. According to some analysts, the current situation may worsen the fall of sterling at the beginning of the week to 1.25 dollars per pound.

However, there are also those experts who firmly believe that leaving the EU will not happen without signing a trade agreement. The problem is expected to be resolved by Monday.

Meanwhile, the possible introduction of negative interest rates by the state does not pass without a trace for the pound. The pressure it feels about this is also dragging its value down. Next Thursday, a meeting of the country's main regulator, the Bank of England, will be held, which also aims for the resolution of this problem.