GBP/USD enthusiasts should enjoy cable's rally in the wake of dovish Fed guidance while they can with Brexit headwinds likely to grow increasingly stiff.
Trading near 1.2780, cable is flirting with 55-DMA resistance at 1.2784. But, despite recent bullish sentiment for the pound, multi-year lows remain a fresh memory as political and economic pitfalls approach.
GBP/USD volatility remains relatively high.
With Brexit expected to take place on March 29 one would expect 3-month GBP/USD volatility to be the peak of the GBP/USD volatility curve.
In fact, 1-month to 6-month volatility, though off early December highs, remains bid hovering near 3-month levels.
Not surprisingly, the GBP/USD volatility curve is expressing the market's fear that the pound is vulnerable to any upset before and after the official Brexit date.
Next week's Parliamentary vote on the deal is the first step.
Failure by PM May to win approval opens up a Pandora's box of alternatives, which may include new elections and possibly a second Brexit referendum. With clear directional guidance in short supply nL1N1Z70AX, it's not surprising that the market is bidding up volatility.
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