Brexit
The EUR to GBP exchange rate came back below the 0.91 level as Governor Bailey’s speech sends the pound higher. Not that he is saying something new or that his remarks are hawkish – the price action simply reflects the uncertainty in the market.
In other words, the currency market is looking for direction, and the EURGBP cross is the perfect example to illustrate that. A close look at what the cross did for the past four years shows how everyone and their mothers wait for the Brexit resolution to come to an end.
Moreover, we have seen lately that the 0.90 level has a crucial role for the pound. Naturally, a crucial role for the EURGBP cross too.
Every time so far in the last four years, the EURGBP cross was sold after climbing above the 0.90 level. Effectively, it means that the 0.90 level reflects the Brexit ongoing negotiations.
Bank of England’s Governor Bailey’s attendance at the panel hosted by the Single Resolution Board brought some interesting remarks. One of the most bullish for the currency was the fact that the Governor does not consider that the new wave of coronavirus infections will have the same economic impact as in spring.
Also, he stated that the U.K. GDP for the third quarter is likely to show a contraction between 7%-10%, much better than the previous quarter showed.
In other words, nothing remarkable in terms of statements, yet the GBP is trading with a bid tone.
The chart below fully reflects the importance of the 0.90 level. If you want, we can interpret the 0.9 as the neutral level when it comes to the Brexit outcome. The more the EURGBP rate moves from the 0.9 level, the more the market prices in a no-deal or a deal outcome.
