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Gains May Not Last Long

The British pound rose against all the other major currencies, after news that the European Union and the United Kingdom had reached a new agreement on the Northern Ireland Protocol, which is likely to open the door to a period of improved relations between the two sides. The GBP/USD gains reached the resistance level 1.2143, before it quickly retreated to the support level 1.2030 at the time of writing.

The fact that the agreement was reached was not surprising to the forex currency markets; After all, this has been marked for quite some time. Instead, it was the scale of the concessions that British Prime Minister Rishi Sunak secured from Brussels that was not expected, meaning that the deal could be made permanent and thus truly end years of uncertainty.

Sterling was the best performing major currency after the announcement of the Windsor Framework, a new treaty that will secure Northern Ireland’s place in the UK as well as the EU’s single market. The deal will facilitate the movement of goods and services between the rest of the UK and Northern Ireland, while Sunak said the deal would give Northern Irish politicians effective veto power over any EU single market laws seen as detrimental to the territory. “We have now made decisive progress,” Sunak said at a news conference alongside Ursula von der Leyen, the president of the European Commission. and “we have removed any sense of borders in the Irish Sea.”

The rise in the pound sterling indicates that markets are looking at the deal as a sign that the EU and UK are working to mend relations after a few years of division over Northern Ireland. The EU will move immediately to include the UK in the Horizon Europe science programme, once the deal is done, the EU Commission chief told a news conference, signaling the potential for an era of improved cooperation. Commenting on this, Sean Osborne, chief forex analyst at Scotiabank, said: “The deal will be positive in the long term for the pound.”

If the deal is adopted, it removes the possibility of a trade war, a long-standing concern that may have been deterring investors from investing in the UK economy. For the GBP, removing any remaining risk premium is supportive.

For his part, Kallum Pickering, an economist at Berenberg Bank, says: “When a deal is announced, and then again after any signing in the British Parliament, we expect to see modest positive movements for both the British pound and Equites in the United Kingdom.”

  • According to the performance on the daily time frame chart, the GBP/USD price approaching the psychological support 1.2000 will continue to motivate the bears for more bearish movement.
  • Sufficient for the technical indicators to move towards oversold levels.
  • On the other hand, and over the same period of time, breaking the resistance levels 1.2160 and 1.2275 will be important for strong control and changing the direction of the currency pair to bullish.
  • So far, I still prefer selling the GBP/USD from every upside.

Today, the currency pair will be affected by the announcement of the British manufacturing PMI reading, the statements of the Bank of England governor, then the reading of the US ISM manufacturing PMI.

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