GBP/USD Forecast: Brexit uncertainty and hawkish Fed press Sterling to 1.3000

  • Junior coalition Unionist party said it will not support a Brexit deal leaving Northern Ireland separated from the rest of the UK.
  • Earlier this week the UK Cabinet was invited to study the Brexit agreement without the crucial part on the Irish border that is being negotiated in Brussels.
  • The UK third-quarter GDP rose 0.6% over the quarter meeting the market expectations.
  • Fed paved the way for the December rate hike in support of the US Dollar. For more details read Joseph's Analysis here. 

The GBP/USD is trading down 0.3% at around 1.3000 on Friday as a combination of hawkish Fed paving the way for the December rate hike, the Unionist party refusing to accept the Brexit deal leaving Northern Ireland separated and the lower than expected UK GDP growth weigh on the currency.

The UK Cabinet was invited by the Prime Minister Theresa May to study the Brexit agreement that misses the crucial part on the Irish border on Thursday while Brexit negative headlines about the timing of possible Brexit deal for three weeks at the earliest saw Sterling sell-off from a 3-week high of 1.3175. The GBP/USD has also been buoyed by weakness in the US dollar following the Democrats snapping the victory in the House while Republicans retained the Senate majority after the US mid-term elections. 

With the Irish border issue being negotiated in Brussels, chances are that the UK Prime Minister could visit Brussels as well to finalize the deal before approval at the European Council meeting. Such a scenario should be treated with caution as the parliamentary approval remains a potential risk.

The GBP/USD broke the 26.3% Fibonacci retracement level of 1.3085 to the downside as hawkish Fed and Brexit pessimism pushed the currency pair past key support level. The Relative Strength Index and Slow Stochastics made a bearish turn moving into the oversold territory. The key area of support at 1.3085 was broken and the currency pair is now in the run to close the Monday morning gap at 1.2960 next. 

GBPUSD 1-hour chart

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