Cable Nearly 1% Up After NI Protocol, Can Bailey Prop Up the Beleaguered Currency?

Rishi Sunak celebrated a breakthrough deal with the EU yesterday, with traders showing appreciation in the pound's performance. Can Governor Andrew Bailey prop up the currency further on Wednesday, or will the new rhetoric die off quickly?

A Boost for Optimism

The pound got a boost of nearly 1% after UK PM Rishi Sunak and European Council President Ursula von der Leyen announced a deal on resolving the impasse over the Northern Ireland Protocol. The issue had been contentious between the two "unions", with the acrimony occasionally dragging on the pound. The hope was that the deal would end the main issue tensing the relations between the two countries.

Due to the disagreement over the Protocol, Northern Ireland had been unable to form a devolved government for months. The issue was that according to the Protocol, Northern Ireland effectively came under the regulatory jurisdiction of the EU. All cargo had to be checked at sea, and shipments that didn't meet EU regulations were turned back. The result was often shops going empty with British staple foods as they couldn't enter Northern Ireland.

The Details and the Future

The deal is more of a proposal since it has to be ratified by the UK Parliament, with many already expressing dissatisfaction around some provisions. Sunak proposed that UK goods going to Northern Ireland not be checked, while those going through Northern Ireland to the EU (Ireland) would get checked. However, the EU gets final decisions on some of the regulations that would apply in Northern Ireland to secure an open border with the Republic of Ireland. That latter part is what irks many Tories and particularly the DUP party. If there are enough demanding revisions, the deal could fail, and the gains in the pound disappear with it.

Pound Hangs on Baily's Speech

But before receiving clarity on that, BOE Governor Bailey will give one of his last public speeches before the next interest rate decision on Wednesday. So, analysts will be looking for clues as to how aggressive the BOE will be to tame prices. The UK has double-digit inflation, little to no growth and wage inflation to deal with, to name a few, but remains confident it will tame inflation soon enough due to high rates.

Is Cable in a Triangle Pattern?

The pound appears in a triangle pattern, which suggests more downside as the typical reaction is a breakout to the predominant trend direction. If $1.1922 is lost, it will expose the pair to the
invalidation low of $1.1915 and then $1.1845. Remaining above the critical swing low could see a spiral to $1.2147, but if the ceiling fails to hold bulls, it will, in its turn, invalidate the triangle and could lead to further advances towards $1.2270. Breaking outside the two extremes has $1.2345 and $1.1738 as the next levels of interest.

Key Takeaways

The pound got a boost of nearly 1% after UK PM Rishi Sunak and European Council President Ursula von der Leyen agreed to a deal resolving the impasse over the Northern Ireland Protocol. Next up is BOE Governor Andrew Bailey's speech on Wednesday, where he is expected to provide investors with clues about how aggressive the BOE will be to tame inflation, leading either to propping up the pound higher or further declines.