GBP/USD rebounds above $1.20 on NI protocol deal

Philip McHugh February 28th 2023 - 2 minute read

The pound rallied on Monday, bolstered by the announcement of a deal to resolve the UK-EU dispute over the Northern Ireland protocol.

Meanwhile, trade in Sterling appears mixed so far this morning, with GBP/EUR muted at €1.1357 and GBP/USD subdued at $1.2040. GBP/CAD is rangebound at CA$1.6377, while GBP/AUD and GBP/NZD accelerate to AU$1.7953 and NZ$1.9622, respectively.

Looking ahead, could potential hurdles for passing the new deal through parliament weigh on GBP exchange rates through today’s session.

What’s been happening?

The pound got off to a flying start this week as GBP investors welcomed the news that an agreement had been reached to address the contentious Northern Ireland protocol.

The NI protocol has caused relations between the UK and EU to fray in recent months. Particularly after Boris Johnson’s government introduced a bill to unilaterally alter the protocol.

Sterling strengthened as it’s hoped the ‘Windsor framework’ could lead to more amicable trade and relations between the two sides going forward.

The euro also firmed on Monday, the single currency being underpinned by European Central Bank (ECB) interest rate expectations.

However, these gains were tempered by the publication of the Eurozone’s Economic Sentiment index as February’s indicator printed below expectations.

The US dollar, meanwhile, faced headwinds through yesterday’s European trading session as risk-on mood prevailed.

These losses were reinforced by the publication of the latest US durable goods orders release as order growth contracted at a faster-than-expected pace last month.

What’s coming up?

In the absence of any high-profile data releases today, movement in the currency market is likely to be driven primarily by geopolitics and market risk sentiment.

In the UK the jubilation over the ‘Windsor framework’ could give way to concern over how the new agreement will be received by the House of Commons.

Significant opposition to the deal from Conservative MPs may shake confidence in it passing the floor, leading the pound to give ground.

Meanwhile movement in the euro may be linked with headlines from Ukraine. Any signs the conflict may be escalating could drag on the single currency.

Finally, the US dollar may take its cues from market risk appetite. Could a cautious mood buoy the ‘greenback’?

Written by
Philip McHugh

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