Northern Ireland Protocol: Impact on EUR/GBP

After Brexit, the Northern Ireland protocol (NIP), as part of the post-Brexit trading agreement, came into effect to address trading between Northern Ireland (part of the UK customs territory) and the Republic of Ireland (part of the EU Customs Union) without the need for hard borders. Implementing the Northern Ireland protocol resulted in the rise in goods' prices. According to CNBC news, the British government confirmed its intention to introduce legislation to change the Northern Ireland protocol. The purpose of the legal bill is to “override parts of the protocol” as reported by the Guardian. The British government's statement about the legal bill sparked tension with the EU, the latter urging the UK not to take unilateral actions to change the Northern Ireland protocol.

The uncertainty about the NIP's legal bill and the UK's inflation has weighed on the stability of the sterling this week. Amid fears of recession and a potential trade war with the EU, the EUR/GBP has fluctuated but strengthened towards the end of last week; the pound is expected to weaken this week. CNBC reported that the Sterling has lost about 8% versus the dollar this year and is hovering below $1.25, just above a two-year low. Further, the report highlighted traders' sentiments amid recession fears, where traders look to short GBP during this week.

Last week's market outlook on EUR/GBP was mixed; the euro strengthened against the pound. The pair have been in a range with a sideways trend, fluctuating between support and resistance levels. The EUR/GBP daily chart showed three support levels: 0.8390 as the third level, 0.8430 as the second level and 0.8455 as the first. In the short term, the significant resistance levels are R1 0.8548 and R2 0.8588. If the rate exceeds R1 0.8548 or drops below S1 0.8455, buy or sell trades can be decided accordingly.

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