Pound paired with the dollar could not resist within the 40-figure, as it is under the yoke of a too pessimistic fundamental picture. Southern dynamics GBP / USD is due not only to the appreciation of the US currency. The pair declines primarily because of problems with Brexit. This aspect is the most sensitive for the British, so now it is inexpedient to talk about any large-scale restoration of the price. Pound staunchly endured all the negative of the British macroeconomic statistics, but the "divorce proceedings" with the EU broke the British, and the pair is now heading towards the 36th figure.
In general, the Brexit process has been a mixed success in recent months. At the end of last year, the first stage of the negotiations was successfully concluded. The parties agreed on the legal guarantees of their citizens and found a common denominator on many financial issues. Earlier this year, London and Brussels were able to approve only the basic principles of future relations. However, this was enough to keep the pound growing, especially against the backdrop of the rigid rhetoric of the English regulator and the expectation of a rate hike in May. But in mid-April, a positive fundamental background collapsed like a house of cards. And "on all fronts" at the same time.
In the beginning, a disappointing block of macroeconomic statistics emerged. PMI indices and inflation were in the red zone, showing a slowdown. At this stage, the pound was still holding, as the decline in indicators was associated with a worsening of the weather in March. But then, the head of the Bank of England poured oil on the fire, who unexpectedly showed indecision in his intentions, discordant with his recent position. He literally stated that "apart from the May meeting there will be others", hinting at the uncertainty regarding the fate of the interest rate. And since at that time, the probability of a rate hike in May was 80%, the pound received a powerful and unexpected blow. The last straw was the data on the growth of the British economy. They also disappointed the market. In the first quarter, GDP slowed to 0.1% and 1.2% in annual terms. The chances of tightening monetary policy further decreased, putting pressure on the already weak pound.
However, it is likely that the British currency would cope with the above problems. First, the macroeconomic negativity is largely due to weather factors, and, secondly, Mark Carney allows only postpone the date of the rate increase, without repealing this issue in principle. Moreover, even at the beginning of the year, the market expected the Central Bank to take any action before September. Therefore, the pound had weighty arguments for maintaining its position within the framework of the 40th figure. If not for one "but" Brexit.
As I said above, London and Brussels started the year with a positive, agreeing on the basic principles of the future deal. But on this mutual hospitality has so far ended. The most complex and contradictory issues remained unresolved. Access to the single market and the border between the Irish. With the filing of the EU's chief negotiator, Michel Barnier, the Irish problem has become a central issue. He recently said that as long as the parties do not reach a compromise, there can be no question of any deal.
Let me remind you that Northern Ireland is the only region in the UK that, after leaving the country from the EU, will have a common border with the member of the European Union, the Republic of Ireland. And although in London, they have repeatedly stated that they do not want to resort to the option of a "tight border", de facto Foggy Albion does not offer any compromise options. Moreover, all the options proposed by Theresa May were rejected by Brussels. Now the parties are again looking for common ground in this matter: before the June EU summit, the negotiators need to find a mutually beneficial solution.
In other words, the deal between London and Brussels was again threatened. This fact is unpleasant in itself (in particular, uncertainty reduces the investment attractiveness of the country), but in this case, Brexit will affect the resolve of members of the English regulator. Against the backdrop of a slowdown in key economic indicators and political problems, the Bank of England is likely to take a wait-and-see approach to tightening monetary policy. Anticipating such a scenario, traders get rid of the pound, and not only paired with the dollar. Almost in all cross-pairs the British actively loses the positions.
The US currency, in turn, continues to advance against the backdrop of the renewed growth in Treasury yields. 10-year treasury securities again approached three percent, increasing the attractiveness of the dollar.
On the technical side, the situation has also changed, and not in favor of the pound. On the daily chart, the trend indicators indicate a further downward movement. The first (strongest) support level is located very close, 1.3710 (line Kijun-sen on the weekly chart). If bears GBP / USD can be fixed below, then they will open their way to the bottom line of the Bollinger Bands indicator on W1, which corresponds to the level of 1.3440.
