RationalFX: The EU and UK are heading for another Brexit review, and this will likely push back any potential gains for the pound.
Sterling already dropped last week after the Bank of England remained dovish by keeping interest rates unchanged.
Following the completion of a third meeting between the EU and UK over the Northern Ireland Protocol, it was confirmed no further progress had been made and the worst-case scenario for Sterling would be if the deal was to be cancelled. The pound rose sharply at the start of the year following the signing of the the EU-UK trade deal which was seen to have put the issue of Brexit to bed. This ongoing issue with the Northern Ireland Protocol serves as a reminder the deal made was not perfect and could mean a Brexit premium begins to push sterling back.
Positive Non-Farm Payrolls data came in with 531,000 jobs gained in October and upward revisions worth 235,000 for previous months. The dollar benefited from the news and from an increase in wages to 4.9% YoY. This initially struck the British pound, which pushed it to a daily low.
GBP/USD is also on the verge of testing the yearly low as the BoE keeps the benchmark interest rate at the record low of 0.10% in November. It seems the central bank will retain the current course for monetary policy as growth is somewhat restrained by disruption in supply chains.
As a result, fresh data coming out of the UK may keep the dollar under pressure as GDP was expected to grow by around 1.5% in Q3 2021 and by 1% in Q4 in the November report projections.
The reaction to the BoE’s November rate decision casts a bearish outlook for GBP/USD. The pound may depreciate further against its US counterpart throughout the remainder of the year as the Federal Reserve starts to scale back monetary support.
Source : ETFWorld.co.uk