GBP/USD – Pound Rally Continues After Brexit Ruling

GBP/USD continues to climb, posting gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.2620. British CBI Industrial Order Expectations improved to 5 points, above the forecast of 2 points. There are no major US releases on the schedule. On Thursday, the UK releases Preliminary GDP, while the US publishes Unemployment Claims and New Home Sales.

The pound is on a roll, having gained 4.7 percent in just over a week. On Wednesday, the currency crossed above the 1.26 level for the first time since December 14. Recent economic numbers have been steady, and the markets are expecting Preliminary GDP for Q4 to show a respectable gain of 0.5%. If the indicator matches or beats the forecast, the pound rally could well continue.

The legal twists and turns surrounding Brexit continue. On Tuesday, the UK Supreme Court denied the government’s appeal regarding Article 50, the mechanism to trigger Britain’s departure from the European Union. The court ruled that the government could not invoke Article 50 prior to receiving approval from both houses of parliament. The ruling was clearly a setback for the government, which tried to downplay the decision. What happens next? In order to commence the exit from the EU, the government must now draft legislation which states that parliament approves of the government triggering Brexit under Article 50. Although there are plenty of Remain supporters in parliament, approval of the legislation is widely expected. What is less clear is whether Prime Minister Theresa May can adhere to her timetable of triggering Article 50 at the end of March, as anti-Brexit members of parliament could propose amendments to delay the legislation and push off the March deadline. May has said the legislation, which will likely be minimal, will be ready on Thursday. She has also accepted demands from both sides of the House to publish a formal white paper, which lawmakers hope will provide further details of the government’s Brexit plan.

Donald Trump has just moved in to the Oval Office, but dramatic change is already underway. On Monday, Trump signed an executive order formally withdrawing the US from the Trans-Pacific Partnership, a broad trade agreement which the US had signed but not ratified. Trump had promised to leave the TPP during the election, arguing that the deal would hurt American workers. Next stop is NAFTA, which Trump has said he will renegotiate with Canada and Mexico. Trump has taken a tough line on US companies that have moved production outside of the US and has threatened to impose tariffs on companies that move production to Mexico. Predictably, these protectionist measures are raising concerns in the markets that US economic growth could drop if the US takes an isolationist stance towards global trade, and such a stance would likely weigh on the US dollar. If America’s trade partners choose to retaliate against Trump’s moves, this could lead to a trade war in which there are no winners. 

GBP. Brexit Hits a Speed Br-ump

Brexit Sceptics Win Battle But Will Lose the War

UK PM May to Publish ‘White Paper’ Setting Out Brexit Plan

GBP/USD Fundamentals

Wednesday (January 25)

• 6:00 British CBI Industrial Order Expectations. Estimate 2. Actual 5
• 9:00 US HPI. Estimate 0.4%. Actual 0.5%
• 10:30 US Crude Oil Inventories. Estimate 1.5M. Actual 2.8M

Upcoming Key Releases

Thursday (January 26)

• 4:30 British Preliminary GDP. Estimate 0.5%
• 8:30 US Unemployment Claims. Estimate 247K
• 10:00 US New Home Sales. Estimate 585K

*All release times are GMT

*Key events are in bold

GBP/USD for Wednesday, January 25, 2017

GBP/USD January 25 at 11:40 EST

Open: 1.2531 High: 1.2602 Low: 1.2490 Close: 1.2621

GBP/USD Technical

• GBP/USD edged lower in the Asian session. The pair posted considerable gains in the European session and continues to move upwards in North American trade
• 1.2579 is providing weak support
• 1.2674 is the next resistance line

Further levels in both directions:

• Below: 1.2579, 1.2471, 1.2351 and 1.2272
• Above: 1.2674, 1.2775 and 1.2849
• Current range: 1.2579 to 1.2674

OANDA’s Open Positions Ratio

GBP/USD ratio is unchanged in the Wednesday session. Currently, long positions command a majority (59%), indicative of trader bias towards GBP/USD continuing to move upwards.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.