Sterling has been a good performer
this year even with the problems that the United Kingdom is facing. Recent data
indicate that the economic growth for the country is softening, with the
manufacturing indicators being a bit sluggish. This is an expected thing to
happen at a time when there is an uncertainty about the future of the country
in the European Union.
If everything goes on as
scheduled, the United Kingdom will exit the European Union in a month’s time.
Even as this is going on, there is no clear indication of what the arrangement
will be. This is because the deals that have been submitted by Theresa May have
been rejected by members of parliament.
Yesterday, the sterling continued
the upward trend after a meeting by Labor MPs. The members, led by Jeremy
Corbyn said that they will support another referendum. This issue has seen a
number of MPs affiliated with the labor party resign because they believe that
another referendum is the best way to go forward. However, it also raises the
probability that a number of Labor members will jump ship and vote for Theresa
May’s deal. This is because they don’t want to be seen as if they are trying to
undo the results of the referendum.
At the same time, reports show
that there is a possibility that Theresa May will be forced to postpone the
March 29 deadline. In the past, she had rejected such narrative, saying that
even with an extension, nothing will change. In fact, analysts believe that
extending the deadline will lead to increased uncertainty.
The GBP/USD pair rose to a high
of 1.3500. This is the highest level this year and an important resistance
level. It is above the short and medium-term EMAs as shown in the chart below.
This surge has led to a sharp increase in the Average Directional Index, which
has moved to almost the 40 level. The RSI too has moved close to the overbought
level. While the upward trend could continue, the pair will likely experience
some more volatility as traders digest the news.