Over the past two weeks, the pound-dollar pair has been guided only by the behavior of the American currency, due to the lack of "own" fundamental factors. However, the situation will return to normal today: on Tuesday, the British parliament is returning from vacation, and the first question should be considered amendments to the Brexit bill. In addition, Ursula von der Leyen, the new President of the European Commission, will visit the UK this week, which will hold preliminary talks with Boris Johnson. As you know, the "divorce proceedings" between London and Brussels is a priority topic for GBP/USD, so from today, traders of this pair will primarily monitor the news flow regarding the prospects for further relations between the Alliance and the country of Foggy Albion.
Let me remind you that the Conservative Party won its most convincing victory in the parliamentary elections in the last 30 years in mid-December, gaining 365 seats in the House of Commons. This allowed Boris Johnson to form his own majority in parliament with a significant "margin" (365 votes with the required 325). At one of their first sessions, members of the House of Commons easily approved a bill to withdraw Britain from the European Union. 358 deputies voted for the bill, which includes a deal agreed upon with the EU on the conditions of the "divorce proceedings", while only 234 parliamentarians voted against.
The bill passed assumes that the transition period ending December 31 of next year will not be extended, and that concluding a trade agreement with the EU after Brexit could do without the consent of the House of Commons. However, it is worth noting here that this document was not finally adopted - it will have to undergo a third reading this month, and after which it will be sent for approval to the House of Lords. Now, it can be assumed that with a high degree of probability, parliamentarians will already cope with this task this week, after which preliminary negotiations with the EU will begin within the transition period.
Despite such a predictable scenario, the pound can still fall into the price turbulence zone today. Traders of the GBP / USD pair are seriously concerned about the 11-month transition period - according to most experts, the parties will not have time to coordinate all the related issues during this time and, accordingly, will not be able to conclude a trade agreement. If Britain de facto leaves the European Union without a deal, then it will be forced to follow the rules of the WTO in matters of foreign trade, with all the ensuing consequences in the form of inevitable barriers. In this case, the recession of the British economy is expected within 2-4% of GDP, not counting long-term losses, which will also be very significant.
Given the background of the issue, it can be assumed that Boris Johnson is now playing a political game, forcing Brussels to make certain concessions to London. In the middle of last year, his team behaved in a similar way - the prime minister, with all his behavior, showed readiness for the implementation of the "hard" Brexit (from among the ministers an appropriate headquarters was created to prepare for the country's exit from the EU). But subsequently, he nevertheless agreed to prolong the negotiation process from October to January, thereby acting contrary to his own promises. Apparently, Johnson now started a similar game, proposing to legislatively limit the transition period.
However, the pound reacts quite sharply to such proposals despite the obviousness of a "political bluff". Therefore, today's discussion of this issue within the walls of the British Parliament may put pressure on the GBP/USD pair. The fact is that the Labor Party made its amendments, which should be considered during the third reading of the "Brexit Bill". In turn, oppositionists demand legislatively to consolidate the continuation of the transitional period until 2023, if an agreement is not reached by June of this year. Obviously, conservatives will not support this idea, and this fact may put background pressure on the pound.
It is also worth noting that Ursula von der Leyen will visit London this week for the first time as the head of the European Commission (although there is still no exact date for the visit). It is worth recalling that according to the agreements reached earlier, the transition period can be extended once for a period not exceeding two years. The new President of the European Commission is actively lobbying for this idea, pointing out the need for this extension. Apparently, she will take a similar position on Downing Street, despite Johnson's categorical in this matter. Thus, the pound will receive significant support if the British prime minister even admits the possibility of an extension of the transition period (which is unlikely). However, if their meeting ends on a minor note, the bears of GBP/USD will receive a significant reason for the downward movement in the region of the 29th figure.
The material has been provided by InstaForex Company - www.instaforex.com