Sterling Remains Volatile As Theresa May Plans Trip to Brussels

Yesterday, the ongoing battle
over Brexit continued in the House of Commons. The members of parliaments voted
on a number of amendments that were intended to reduce the possibility of a
no-deal Brexit. One of the amendment required the prime minister to postpone
article 50 until the end of the year if she was unable to pass a deal by
February 28. The amendment that prevailed required her to go back to Brussels
to renegotiate the deal she had passed with the union.

As noted before, the main issue
with the current divorce bill is that it did not address properly the issue of
backstop. This deals with how to handle with North Ireland, which is part of
the United Kingdom and Ireland, which is part of the European Union. A
disorderly exit may lead to more problems at the border because it potentially mean
that supply chains will be disrupted. Today, it takes a few minutes for a truck
to pass the border. With a no-deal Brexit, it may take hours or days.

The European Union has indicated
that it will not renegotiate the deal to accommodate the new requirements from
the United Kingdom. However, they could cave in to Theresa May’s demands now
that she has the full backing of her party. In addition, they too don’t want to
go through a no-deal Brexit. However, it is still difficult to imagine what
will happen in the next 60 days, which makes trading the sterling a bit

After yesterday’s vote, the
GBP/USD pair declined to a low of 1.3060, which was lower than yesterday’s high
of 1.3200. On the one-month chart below, the pair’s price has moved below the
42-day and 21-day EMAs while the commodity channel index has moved from the
oversold level to 34 as shown in the chart below. There is a likelihood that
the pair will resume the upward trend as investors hope for a compromise deal
between the UK and EU.

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