The Pound Falls in Response to Reeves' Statements

[Ben Graham]

The British pound dropped sharply following comments from Prime Minister Rachel Reeves, who stated that the United Kingdom could gain enormous benefits from restoring relations with the European Union. It is worth recalling that since the beginning of this year, the Labour government has been striving to build closer ties with the UK's largest trading partner, nearly six years after Brexit. This has alarmed investors and traders, many of whom have spent the past six years adapting to the current trading arrangements and the country's economic model.

Speaking on Tuesday at the Future Investment Initiative Summit in Saudi Arabia, Reeves said that higher trade costs caused by Brexit had contributed to inflation in the UK, which has risen to almost double the Bank of England's 2% target. She added that the government had feared that a new agreement to strengthen ties with the EU — reached earlier this year — might "open a can of worms," referring to years of national debate over Brexit, but in the end found that the reaction was positive.

"If you look at the modern United Kingdom, when in May we reached an agreement with the European Union to remove some barriers and launch an ambitious mobility program, we saw public support," she said. "It's clear that restoring some of these relationships brings enormous advantages," she added.

The pound's decline reflects market concerns about potential instability that could arise from major changes in trade policy. Investors evidently prefer stability and predictability, especially amid global economic uncertainty. The next step will likely involve a closer examination of the details of the government's proposed strategy to rebuild ties with the EU. The market is waiting for specifics: Which sectors will benefit and which will lose? What compromises is London prepared to make? And how might this affect national sovereignty?

The answers to these questions will determine the future trajectory of the pound and the overall investment appeal of the United Kingdom.

Technical Outlook for GBP/USD

For pound buyers, it is crucial to break through the nearest resistance at 1.3330. Only this will open the way to 1.3365, above which a breakout will be quite challenging. The final upward target remains the 1.3400 level.

In case of a decline, bears will aim to regain control of the 1.3290 level. If they succeed, a break below this range will deal a serious blow to bullish positions, pushing GBP/USD down toward 1.3240, with the potential to reach 1.3220.

Technical Outlook for EUR/USD

As for EUR/USD, buyers now need to focus on capturing the 1.1675 level. Only then will a test of 1.1700 become possible. From there, the pair could attempt to climb to 1.1725, though doing so without strong support from large market players will be difficult. The ultimate target lies at 1.1755.

If the instrument declines, I expect major buyers to become active around 1.1645. If no buying interest appears there, it would be better to wait for a retest of the 1.1620 low or consider opening long positions near 1.1580.

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