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GBPUSD D1 10 18 2021 1324

 


The GBP/USD pair preserved its bullish momentum in the second half of the previous week despite the dollar's resilience and has gone into a consolidation phase above 1.3700 on Monday.

The renewed Brexit optimism combined with the Bank of England's (BoE) rate hike prospects helped the British pound find demand. Mirroring the broad GBP strength, the EUR/GBP pair slumped to its lowest level since February 2020 at 0.8422 on Friday.

David Frost, the British minister responsible for implementing the Brexit deal, has reportedly said there is still a gap between the EU's and the UK's negotiating positions with regards to the Northern Ireland protocol. In case the EU refuses to renegotiate the protocol and the UK asks for additional concessions, the GBP could find it difficult to continue to outperform its rivals. Meanwhile, several EU member states are pushing Brussels to plan for a prolonged trade war with the UK.

Rising inflation pressures are increasingly putting pressure on central banks to act, with the Bank of England putting themselves front and center after hawkish comments from Governor Andrew Bailey. Bailey said that the bank would “have to act” in response to soaring inflation, with markets now pricing in a 65% chance that the bank will raise rates in November. While the BoE look set to raise rates this year, the fact that the ECB is not expected to increase rates until late-2022 highlights the basis for further EURGBP weakness.

EURGBP D1 10 18 2021 1325

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