GBP/USD Forecast: British pound to weaken with Brexit headlines taking center stage

GBP/USD has lost its bullish momentum following Thursday's rebound.
UK is reportedly preparing for repercussions of triggering Article 16.
GBP/USD's upside potential remains limited unless the dollar stays under selling pressure.

Eren Sengezer FXStreet

The GBP/USD pair has managed to erase a portion of its weekly losses on Thursday but failed to recapture the 1.3800 mark. However, the fact that the EUR/GBP pair registered gains for the second straight day on Thursday suggests that GBP/USD's recovery was fueled by the broad-based USD weakness rather than GBP strength.

The greenback weakened against its major rivals after the US Bureau of Economic Analysis' first estimate revealed that the economy expanded by 2% on a yearly basis in the third quarter. This reading missed the market expectation of 2.7% by a wide margin and forced investors to reassess their view on the Fed's taper timeline. Later in the session, the Personal Consumption Expenditures (PCE) Price Index data from the US will be watched closely to see if there is enough there for the Fed to prioritize growth over inflation outlook ahead of next week's meeting.

Unless the dollar continues to have a difficult time finding demand in the remainder of the day, GBP/USD is unlikely to regain its traction with the latest Brexit headlines painting a gloomy picture.

Late Thursday, France captured a British fishing vessel and fined another one amid the ongoing post-Brexit fishing rights spat. French Agriculture Minister Julien Denormandie told France 2 TV on Friday that there was no progress in talks with the UK following the latest incident.

Meanwhile, several news outlets reported that the UK is preparing for the fallout from triggering Article 16 and suspending the Northern Ireland protocol. The EU and the UK remain far apart when it comes to the involvement of the European Court of Justice over trade disputes in Northern Ireland.

GBP/USD technical analysis

The Relative Strength Index (RSI) indicator on the four-hour chart returned to 50, suggesting that buyers remain hesitant when it comes to committing to a steady advance.

Currently, the pair is testing the 50-period SMA at 1.3780 and could extend its slide to 1.3740 (Fibonacci 23.6% retracement of the latest uptrend) before 1.3680 (Fibonacci 38.2% retracement, 200-period SMA).

On the other hand, 1.3800 (psychological level) acts as the initial resistance ahead of 1.3830/40 (October 20 high, October 21 high).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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