Binary options traders have witnessed prolonged bearish sentiment with the GBP/USD currency pair since the June 23 Brexit referendum. Recent GBP/USD weakness has been attributed to the meeting between Bank of England Governor, Mark Carney and Members of Parliament. The issues that are impacting the currency pair include Q3 GDP growth in the UK and the US. Recently, the US Dollar Index (DXY) rallied on positive sentiment. This is the third week in a row that the US dollar index has risen. Now, the DXY is at an 8-month high. This naturally weakens the GBP/USD currency pair. Volatility in this pair is expected to increase given the upcoming readings on third-quarter GDP growth in both countries.

GBP versus the World: Sharp Appreciations and Depreciations Noted 

One of the issues that remains pivotal to the stability of the GBP is Prime Minister Theresa May’s schedule for a Brexit. The issue of a hard Brexit or a soft Brexit is particularly important. A hard Brexit would have a detrimental effect on the GBP, while a soft Brexit would have a graduated impact with significantly less volatility. Between 14 October and 21 October 2016, the GBP was one of the few currencies that actually appreciated against the greenback. In that timeframe, there was a 0.4% appreciation against the dollar. By contrast, the EUR depreciated by 0.8%, the AUD declined by 0.1%, the CAD declined by 1.5%, and the CNY declined by 0.5%.

Why Did the GBP Plunge on Tuesday, 25 October 2016?

During the mid-afternoon trading session on Tuesday, the GBP/USD pair plunged to 1.2009, down 1.1%. This marks the lowest level for the currency pair since the ‘flash-crash’ earlier in the month. By the end of the day in the UK, the GBP/USD currency pair was trading at 1.2141, down 0.64% or $0.0078. The GBP also weakened against the EUR when it plunged to 0.9% to trade at 1.1148. Much of the anxiety in markets is a result of Mark Carney’s testimony before the Lords Economist Committee. The Chancellor of the Exchequer, Philip Hammond also intoned that the European Union may have dealt a low blow to the UK on the Brexit issue. The Bank of England is expected to convene next week and the statements made by Governor Mark Carney will be closely scrutinised by analysts.

Mark Carney was an outspoken critic of a Brexit. He warned of the dire consequences to the UK economy should Britons vote to break from the EU. Now that the Brexit issue has been resolved, there is uncertainty about his future. So far, the UK economy has not shown any structural cracks. The lag effect of the Brexit issue is likely to continue for quite some time, at least until Prime Minister Theresa May invokes Article 50 of the Lisbon Treaty. Carney was an ardent supporter of Prime Minister David Cameron whose campaign against a Brexit was well-known. During his upcoming testimony, Carney will be pressed on all aspects of BOE monetary policy. If it comes to pass that the Bank of England was incorrect in its assessment of the Brexit referendum, the sterling may be bolstered in the short-term.