The pound/dollar pair shows a price correction, returning to the framework of the 23rd figure. The price increase is primarily due to the weakening of the US currency. This week, the dollar index declined from 99.3 points to 98.2, reflecting market concerns about the prospects for the US economy. Yesterday's numbers only reinforced this concern, after which the dollar continued its downward movement.
In turn, the pound continues to be under the background Brexit pressure, so the growth of GBP/USD is not impulsive (especially when comparing the dynamics with EUR/USD). Nevertheless, the pound was able to suspend its decline - in just two days, the pair "regained" more than 100 points. It is noteworthy that not only American events contribute to the price increase, current news regarding the prospects of the negotiation process between London and Brussels also inspire some optimism. And although the parties still demonstrate a "fundamental peremptory" in relation to their positions, there is still some clearance at the end of the tunnel.
Let me remind you that negotiations regarding the conclusion of a trade deal between the UK and the European Union ended when they barely began. At the beginning of the year, the negotiators held several meetings, but according to their results, the parties voiced only mutual accusations and reproaches. Then came the coronavirus crisis, blocking the negotiation process for several months. To date, working groups are ready to resume it (according to preliminary data, from June 1), however, preliminary comments by the parties are negative.
In early May, European Commissioner for Trade Phil Hogan announced that Britain "is not focused on success in trade negotiations with Brussels." In his opinion, London plans to blame the negative outcome of negotiations on future relations with the EU on a pandemic, although in fact the British are showing immaturity in the negotiation process. Such a comment put additional pressure on the pound, after which he updated the two-month low, finding himself in the middle of the 20th figure.
A few days ago, the representative of the British side voiced his position. David Frost admitted that there was no agreement between the parties on almost all issues - from fisheries and agriculture to pharmaceutical rules and tariffs. At the same time, he recalled that Boris Johnson does not intend to extend the transition period, and the negotiation deadline expires at the end of June. According to the head of the British government, it will become clear by this moment whether further negotiations have any prospects or whether the country should prepare for a new format of relations, without a trade deal.
Along with this statement, information appeared on the market that Brussels was ready to make certain concessions to London only if the British themselves show flexibility in the negotiations. Similar demands on Europeans were allegedly made from Downing Street. And although this information is unofficial, it helped the pound recover throughout the market, including paired with the dollar. The willingness of the parties to a compromise solution is the main impulse for the growth of GBP/USD, so any hints in this regard support the pound. Yesterday, another piece of information appeared that also contributed to the pound. Sources in The Times reported that Boris Johnson will travel to Brussels in June and hold personal talks with EU leaders, and possibly with key political figures (primarily Angel Merkel and Macron).
Of course, such a visit does not guarantee a breakthrough in the negotiations. Johnson has repeatedly returned from Brussels with nothing. But still, there is a certain probability of progress: I remind you that Brexit was moved from the dead point last year thanks only to the British Prime Minister's personal contacts with European colleagues. The negotiators were in the background and only "consolidated the success".
They hope for a similar result in this case. Although it's still too early to talk about any forecasts, given that negotiations between the working groups will begin next week.
Thus, buyers of GBP/USD, on the one hand, take advantage of the weakness of the dollar, and on the other hand, they enjoy unfounded optimism regarding the prospects of the negotiation process between London and Brussels. These fundamental factors are highly unreliable. In particular, if the negotiators "slam the doors" next week again, then the pound will turn down regardless of the "well-being" of the US currency. As for the dollar, the intrigue will be resolved today. The fact is that a press conference is planned for today by Donald Trump, at which he will announce a list of retaliatory measures to China in the context of the "Hong Kong issue". If the head of the White house provokes a surge in anti-risk sentiment, the dollar will go up again, and the pound will have to "give way" to it.
In other words, the market situation is uncertain. And if this uncertainty for the pound will remain for several more weeks (at least until the end of June), then the dollar is likely to determine its vector of movement today. Therefore, it is advisable to make trading decisions on the GBP/USD pair after the Trump press conference. As a result of his speech, the pair can either rise to the resistance level of 1.2450 (if Washington's retaliatory measures are exclusively political), or return to around the level of 1.2230 (if the conflict between the countries goes into the economic plane).
