FX.co ★ Pound gains strength

The British currency's attempts to climb out of the price hole were successful. The pound overcame the pull of the 11-month low and rallied upwards.

The pound showed an upward movement at the start of the week. Experts attribute the gradual rise in GBP/USD to a shift in market focus to the post-Brexit trade deal with Northern Ireland. Additional support for the pound is provided by the possibility of a rate hike by the Bank of England in December this year.

On November 12, the UK's Brexit minister David Frost announced the government's involvement in the negotiations with the EU. The key topic is the issues related to the Northern Ireland protocol. Experts worry that if there is no compromise, the UK will introduce emergency measures, known as Article 16 of the Northern Ireland Protocol. Possible emergency measures on the British side would provoke an EU response. Such a scenario would lead to a prolonged trade war. To avoid negative consequences for the economy, London and Brussels are ready to start negotiations. The two sides will team up to reach a consensus.

This situation is having a negative effect on sterling. The decision of the Bank of England to maintain its key interest rate was surprising news for the pound. Tension in the UK-EU negotiations is turning up the heat. The pound is currently benefiting from a rising risk appetite but has lagged behind other major currencies. On the morning of November 16, the British currency gained 0.2% to 1.3436. Experts believe this is a strong level of resistance in the GBP/USD pair. Early in the day, it was dominated by bullish sentiment. The bulls repeatedly broke through the 1.3436 mark in the course of trading and eventually took it. As a result, the GBP/USD pair ended up in the 1.3447-1.3448 range.

However, the pound did not stop at this point. Having overcome the obstacle course, GBP/USD headed towards local highs. The currency's attempts were successful. Later, the GBP/USD pair gained ground and ended up near 1.3471. Analysts estimate that the next significant level will be 1.3500.

Many experts are drawing attention to the long bullish trend of GBP. According to currency strategists of ING bank, the low risk premium associated with Brexit received during operations with the pound, contributes to this. ING believes that markets will continue to avoid risks related to the British currency.

The Bank of England's dovish stance on QE also contributed to the long decline in GBP. It sent the GBP/USD pair into the range of last December's lows (to 1.3400). Last year, the Bank of England's position differed from that of other regulators, which included a key rate hike in quotations. However, now the cost of bonds includes a rate hike, which is scheduled for mid-December. Against this background, the Bank of England should make up its mind about the rate and further monetary policy.

According to analysts, the expectation of a December rate hike by the regulator has seriously weakened the pound. If the Bank of England focuses on economic recovery and ignores inflation issues, pressure on GBP will increase. However, experts are confident that the British regulator will be the first central bank to raise interest rates. Only the timing of these measures is questionable. This is likely to happen either in December 2021 or early next year.