Brexit in a week from 2/3 – 8/3/2020
The first week of negotiations on a trade deal between the EU and the UK showed significant divergences and confirmed that further negotiations will not be easy at all. Yet, the GBPUSD strengthened strongly to 1.3050 last week and is currently testing the closest resistance. But moving averages created a bearish constellation of the death cross. Will this signal be confirmed and the pound will decrease depending on what budget will be presented on Wednesday?
The first week of negotiations on a trade deal showed significant divergences in some key areas as for example fishing, law enforcement, and the EU standards. The EU wants to use the Court of Justice of the European Union as an ultimate arbiter in the case of disputes but the UK does not want it. The UK also does not want to follow EU standards. Regarding fishing, the EU wants to hold current rights but the UK proposes a different model where the UK would have full control over its fishing waters.
So what the future trade deal will look like we do not know yet. We also do not know how the coronavirus will influence all negotiations in the future. The negotiating teams did not discuss what they would do in that case. We just know that they stopped shaking hands, just in case.
Last week we learned from the British press that Brexit administration had cost Britain £ 4.4 billion so far. Information about these costs was kept secret from the British public. The report came when the Conservative party member Duncan Smith leads a rebellion in the party over Huawei's role in the UK 5G network.
From a macroeconomic point of view, last week was relatively busy for the British pound. On Monday, PMI data in the manufacturing sector were reported, reaching 51.7 compared to the previous 50. PMI in the construction sector reached 52.6 compared to the previous 48.4. PMI in the service sector, that is very important for the UK reached 53.2 compared to the previous 53.9. Overall, the PMI was positive and this was probably one of the reasons why the pound strengthened last week.
Another reason for strengthening the pound last week was that on Tuesday, the US Fed dropped surprisingly the key rate from 1.75% to 1.25% in response to support the economy in the current coronavirus epidemic. In addition, it is possible that the further rate cut which is strongly supported by President Trump will continue.
The GBPUSD currency pair is also influenced by US data. Last Friday, employment data was reported in the United States, which was very good when the Non-farm payrolls (NFP) indicator, which shows a change in employed persons except the agricultural sector, reached 273,000 compared to the expected 175,000. However, in the current atmosphere of potential rate cuts, it had no major effect on the USD.