GBP/USD Forecast: 3 reasons why the bittersweet EU Summit can push the Pound lower

The EU approved the Brexit deal at the special EU Summit.
The agreement was priced in, but the hurdles to pass it in Parliament are harder.
GBP/USD could remain under immense pressure.

Yohay Elam FXStreet

The special summit of the European Union on Brexit ended with an approval of the deal that sets the path for the divorce between the UK and the EU. While the discussion among the 27 members reportedly took only 38 minutes and was priced in, there are three related developments that are of worry to UK PM Theresa May and the Pound.

1) DUP Threats

While the most thorny issue of the Brexit negotiations was settled, it does not satisfy everybody. The Irish border issue was resolved with the unpopular "backstop" which gives Northern Ireland a special status to the region, different from that of the rest of the UK.

May's government depends on the Northern Irish DUP in Parliament, as it lacks a majority. The DUP is opposed to the backstop and already abstained on a few budget votes this week. But this is not the end of it.

Leader Arlene Foster gave an interview to Andrew Marr and hinted her 10-member strong party may go further than voting against the Brexit deal: they could break the supply and confidence accord and this risks toppling the government. A general election could lead to a Labour government which markets would not see favorably.

2) Concession on Gibraltar

Contrary to the united front that the EU presented around Ireland, members were reportedly "impatient" with the demand of Spain to receive further assurances on Gibraltar. Nevertheless, the UK agreed to the requests made by Spanish PM Pedro Sánchez and a last-minute text providing guarantees was added.

The development was criticized by Brexiteers, lowering support in the public and in Parliament. The Spanish PM was gleeful in the EU Summit, not helping May's cause.

3) No generosity from the winners

The EU got its way in the Brexit negotiations, and not only on Gibraltar. The deal maintained the unity of the bloc and the UK was relegated to a rule-taker, at least in the transition period. German Chancellor Angela Merkel was moderate in her comments, saying it is a sad day but was pleased an agreement was reached.

However, European Commission President Jean-Claude Juncker, not a popular figure in Britain, emphasized that this deal is as good as it gets. Moreover, he advised British Members of Parliament to vote for the deal.

Foreign intervention is frowned upon everywhere and will make Brexiteers and swing voters even angrier. Like with Gibraltar, it lowers the chances of passing the bill through the House of Commons.

GBP/USD

An EU approval of the deal was expected ahead of the weekend and priced in. The other developments were not on the agenda. All in all, the bittersweet victory for May may turn into a pressure on the pound as markets reopen.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Breaking: Iran closes the Strait of Hormuz amid ceasefire deal violation

Iran says it is closing the Strait of Hormuz after accusing the United States (US) and Israel of violating the ceasefire. According to Iran, the decision came over the continued Israeli strikes in Lebanon. The Iranian Revolutionary Guard Corps Navy issued a warning to all vessels: "Do not approach the Strait of Hormuz; otherwise, your security will be jeopardized."

The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.