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British Pound Steady, But More Brexit Drama Looms

GBP/USD is almost unchanged in the Monday session. In North American trade, the pair is trading at 1.3228, up 0.14% on the day. It’s a quiet session for fundamentals, with no data events. In the U.S., the sole events are speeches from two FOMC members, Charles Evans and Eric Rosengren. On Tuesday, the U.S. releases building permits and CB consumer confidence.

Amid the chaos surrounding Brexit, about the only certainty in store this week is that the drama will continue, as parliament is scheduled to hold a series of votes. On Monday, lawmakers vote on whether to adopt alternatives to Prime Minister May’s withdrawal agreement. If this motion passes, parliament would vote on an array of alternatives on Wednesday, which could include a second referendum or some version of May’s withdrawal deal. However, even if any alternatives are supported by parliament, they would not be binding on the government. May has seen her authority seriously eroded, and she would like nothing more than to see parliament pass her deal or a similar variation. The pound showed strong movement late in the week, and the volatility is likely to continue this week.

A sharply dovish Federal Reserve has unnerved investors, and stock markets dropped sharply late last week. At last week’s policy meeting, the Federal Reserve indicated it had no plans to raise interest rates in 2019 and also lowered its growth forecast for 2019 to 2.1%, down from 2.3% in December. There was more bad news on Friday, as the spread between 3-month and 10-year Treasury notes turned negative for the first time since 2007. This is known as an inverted yield curve, which is considered a recession indicator. All eyes will be on U.S. Final GDP, which will be released on Thursday. If GDP is weaker than expected, traders can expect volatility in the currency markets.

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