Background

The British pound sterling has had a bumpy ride since the “Brexit” vote to leave the European Union in June 2016. The pound’s value in relation to the dollar plummeted after the vote, and there has been talk that Prime Minister Boris Johnson’s threat of a no-deal departure from the EU could threaten the pound’s record low from 1985.

Britain faces an Oct. 31 deadline for leaving the EU. Johnson had said he would never ask for an extension, but he may have eased that stance after being dealt a series of unequivocal defeats by Parliament, which now is suspended until after the deadline. Pound traders continue to root for a deal.

“Any negotiated outcome that can get through the House of Commons is a big upside surprise,” says Rupert Harrison , a portfolio manager and chief macro strategist at BlackRock International.

The issue

An analysis with Bloomberg tools also sees some positive signs as the likelihood of a no-deal Brexit diminishes. The review shows the pound/dollar pairing traded in a recognizable range for six years beginning from a November 2009 high. The Brexit vote in 2016 then dropped it into a new channel — and the drop was exactly equal in range to the width of the channel. The support line it projected is still holding firm, the analysis indicates.

This downward channel held for about three months before the pound rebounded on Sept. 3. Based on the logic of the previous breakout on the weekly channel, the pound may appreciate to $1.258 in this rally.