GBP/USD spikes ahead of Brexit talks as ING warns of a pullback

The GBP/USD pair is in a strong upward trend today as investors place their hopes on a Brexit deal as the sixth round of talks start. The pair is up by 0.90% and is trading at 1.3220, which is the highest it has been since December last year. The EUR/GBP is down by 0.35% while the GBP/AUD is up by more than 0.75%.

Brexit talks resume

The GBP/USD is rising today even as officials from the UK and the European Union meet in Brussels to attempt to reach a Brexit agreement. The round six of talks is happening after the two sides took a brief summer break.

According to Bloomberg, analysts believe that the current round of talks will yield some results. That is because of how high the stakes are since the two sides have until October 2 to reach a deal.

Still, the two sides have several challenges to reach an agreement. First, they are yet to agree on a fishing deal. At the core of the fishing disagreement is the UK insistence on having the final say of its rich fishing grounds. The EU wants a fishing deal because its fishermen catch more than 50% of their fish in UK waters.

Second, there is a disagreement on trade and regulations. The UK has said that it wants to have a Canadian-style agreement, a proposal that the EU has rejected. Such a deal would allow the UK to sell its goods freely in the EU without having the need to follow the bloc’s regulations. The EU argues that such a deal will be disadvantageous to its companies.

As the sixth round of talks start, the EU has made some concessions. For example, it has accepted that the European Court of Justice (ECJ) will not have a role in the deal.

The two sides have until October to reach a deal. If no deal will have been reached by December 31, the two will go back to tariffs and quotas for the first time in years.

As these talks begin, analysts at ING are warning about the GBP/USD pair. In a report, they said:

“Our base case remains for a deal to be ultimately reached, but we expect the over-complacent GBP to face increasing Brexit-related stress in the coming weeks, making it a possible key laggard in the G10 space.”

The GBP/USD pair will react to the CPI data that will come out tomorrow. Analysts expect that the headline CPI increased by 0.6% in July while the core CPI increased by 1.3%.

GBP/USD technical outlook

The daily chart below shows that the GBP/USD pair has been in an upward trend after bottoming at 1.1430 in March. The price remains above the 50-day and 100-day simple moving averages. The RSI has moved back to the overbought level. Therefore, it seems like bulls are in total control, which means that the price is likely to continue rising in the near term.