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Forecast: Great Britain Pound Waits for Brexit Vote

January 14, 2019 at 12:00 by Vladimir Vyun

10 pound notes on the background made of 20 pound notesThe Great Britain pound will likely experience significant volatility this week due to the upcoming Brexit vote. Because of the importance of the event, macroeconomic data should have a limited impact on the currency, being overshadowed by the vote.

UK Prime Minister Theresa May managed to reach a trade agreement with the European Union. Yet the vast majority of experts believe that the Parliament will likely reject the deal during the voting on Tuesday. It is virtually impossible to predict what happens next due to a wide variety of possible scenarios, which include a snap election and a new referendum. Generally speaking, anything that delays or prevents the Brexit would be bullish for the sterling. Conversely, anything that increases chances for hard Brexit would be very bearish for the currency.

British macroeconomic reports are expected to have muted impact on the Forex market due to all the attention being driven towards the Brexit vote. In particular, it seems that the Bank of England is more concerned with the outcome of the Brexit than with the immediate economic data. Therefore, the Brexit vote will likely have a much stronger impact on the Bank’s monetary policy decision than any macroeconomic reports. Nevertheless, the pound may have a short-term reaction to this week’s important economic releases, therefore it is prudent for traders to take them into account.

On Wednesday, the Office for National Statistics will release the Consumer Price Index. Economists predicted ahead of the report that it will show slowdown of annual inflation from 2.3% in November to 2.1% in December. It is reasonable expectation, considering that consumer inflation was slowing since August.

On Friday, the Office for National Statistics will release retail sales data. Experts predicted that it will show a drop of 0.8% in December following the 1.4% increase in November.

Due to the extreme unpredictability of the outcome of the Brexit vote, DailyFx preferred to stay neutral on the currency. Despite that, the forecast was leaning to the bearish side, saying:

Another option – and the one most likely knowing the incumbent government – is kicking the can down the road. While this may be a way to break the current deadlock, if this delay tactic was to continue in the same vein as Brexit negotiations to date, Sterling traders may just throw in the towel and send the British Pound spiraling lower.

Meanwhile, Forex Crunch was outright bearish on the cable, saying:

With Prime Minister May expected to suffer a significant defeat on the Brexit deal, it’s difficult to see how the pound will escape the week without losses. It could be a tumultuous week for GBP/USD.

If you have any questions, comments, or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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