GBP/USD and EUR/USD: The approval of the Brexit agreement in parliament without a trade agreement does not please the buyers

The pound ignored Friday's vote, where the British Parliament supported the Brexit agreement proposed by Boris Johnson. 358 votes for the agreement were cast against 234 votes, and the lack of growth of the pound is due to the fact that the victory of the Conservative Party is already clear, and the majority in Parliament will allow the Brexit agreement to pass through it without problems. It is worth noting that the vote in Parliament is important but is not the final step towards UK's exit from the EU on January 31. The final approval will take place in January next year, as the document will have to go through another vote in the House of Commons, followed by approval in the House of Lords.


Now, all the attention of traders and market participants will be shifted to what path the development of new trade relations between UK and EU will take. If compromises are reached on a number of important issues, this will support the economy in the medium term, as well as return demand for the British pound. A tougher exit scenario without an agreement, or an agreement in the "raw" form that many experts fear, will continue to put pressure on the pound.

Data showing the UK's economy growing at a faster pace in the 3rd quarter of this year than previously thought, supported the pound on Friday. Growth was driven by services and exports, however, it is not necessary to talk about a return to a more or less stable growth rate, as we remember that the December report on the services sector pointed to its reduction, indicating a sluggish economic recovery by the end of this year.

According to the report of the National Bureau of Statistics, UK's GDP in the 3rd quarter of 2019 grew by 0.4% compared to the 2nd quarter, contrasting economists' prediction of growth in only 0.2%. On an annualized basis, growth was 1.7%. In the 3rd quarter, compared to the same period last year, it grew by 1.1%.


Growth in borrowing demand is also a good signal for the economy. According to the report, net borrowings of the UK public sector gained to 5.6 billion pounds in November, while economists had expected it to amount to 5 billion pounds. In total, during the year, borrowing will amount to 42.4 billion pounds, which is 5.2 billion pounds less. It should be noted that the moderate fiscal stimulus observed throughout this year and fiercely contested by Boris Johnson's opponent Jeremy Corbyn could have a negative impact on the economy, which is already one step away from recession due to uncertainty with Brexit and low global economic growth themes .

As for the technical picture of the GBP / USD pair, the bears almost pushed the trading instrument in December to the lows in the area of 1.2880. Only the level 1.2985 separates them from updating, which sellers will target today. Bulls need to return to the resistance of 1.3075, and a breakthrough of which will hit the stop orders of the bears, leading the GBP / USD to a maximum of 1.3130.


Demand for the US dollar returned after a series of fundamental statistics that managed to please traders by the end of this year.

According to the report of the US Department of Commerce, the US GDP growth rate in the 3rd quarter of this year remained unchanged at a fairly high level. Thus, the annual GDP growth was 2.1%, which fully coincided with the previous estimate of the Ministry. Let me remind you that in the 2nd quarter of this year, the economy showed growth of 2.0%.


It is expected that in the 4th quarter, economic growth will slow down, and at the end of the year will be 1.8%.

The US dollar also received support after data indicating that US households increased their spending in November. If everything is clear with expenses, on the eve of New Year, they will be increasing, and this steady growth of incomes confirms the good state of the economy and the labor market. According to the US Department of Commerce, spending in November increased by 0.4% compared to October, and personal income of Americans over the same period added 0.5%. This is in contrast to economists' expectation of household spending to rise 0.4 percent and personal income to rise at only 0.3 percent.

University of Michigan's report on Americans improving their economic prospects also helped the dollar strengthen against the euro and the pound. Households, in particular, were pointed to have improved prospects. According to the data, the final index of consumer sentiment in December rose to 99.3 points, while economists expected it to be at 99.2, as in November. The rise in sentiment is not surprising, as rising incomes have a positive effect on households' attitudes to the economy as a whole.

On the other hand, the activity report from the Federal Reserve Bank of Kansas City, which no one paid attention to, is not so positive. According to the data, the composite index fell to -8 points in December against -3 points in November. The decline was due to low manufacturing activity, which fell for the sixth month in a row.

On Friday, US President Donald Trump made a number of statements on the subject of a trade agreement with China. He noted that he had a very good conversation with Chinese leader XI regarding the trade agreement, and he is pleased that China has started to make large purchases of agricultural products.

The material has been provided by InstaForex Company -