GBP/USD Fundamental Analysis – week of January 23, 2017

GBPUSD began last week on a very weak note ahead of the speech from the UK PM May that was scheduled during the course of the week. Last weekend, we had several rumours swirling around and the UK press went to town stating that the UK economy would be in for some tough times as the UK government prepared itself for a hard Brexit rather than a soft one. With no voice being heard from the government, the markets assumed the worst and the result risk caused the GBPUSD pair to open below 1.2000. But then it staged a slow and steady recovery during the early part of the week and the recovery was complete after the speech from May.

The UK PM laid out clear guidelines on how the Brexit process is likely to proceed and also made it clear that the exit would be a full one losing access to the free tradezone but that the government would negotiate with the Euro leaders for a different kind of free access to the tradezone so that they would be able to maintain something that is close to the status quo. This kind of clarity was reassuring to the markets and it showed its approval by pushing the pair above 1.2300 and also above 1.2400 for a brief while. It trades just below that figure to close that week looking volatile and heavy.

Looking ahead to the coming week, the major news would be the UK Court Ruling on the EU membership where they will decide whether the government can go ahead with invoking of Article 50 without Parliamentary approval. It is widely expected that the court will rule that Parliamentary approval is indeed required and this would require an Act to be enacted. It is difficult to judge on what impact this is likely to have on the pound as enacting an Act would delay the process further and could also bring in more risks while on the other hand, if no approval is needed, then that means giving a free hand to a few people to decide what is good for the people of the UK. It is advisable to wait and watch from the sidelines to see the impact before jumping in though we believe that the move following the ruling could be a bullish one.