The exchange rate of the pound against the dollar continues to show a negative trend. GBP fell to a one-month low against the dollar on Thursday after Britain and the European Union failed to agree on solutions to trade issues in Northern Ireland following Britain’s exit from the EU.

The UK and the EU have exchanged threats this week in a stand-off that could overshadow a weekend international summit hosted by the UK.

The British currency was hit hard after European Commission Vice-President Maros Sefkovic said on Wednesday that the EU is considering taking legal action against the UK over its actions in Northern Ireland, which could lead to legal action by the autumn or the possible imposition of tariffs and quotas.

Why is the pound to dollar (GBP/USD) exchange rate falling?

Brussels accuses London of failing to check some goods being moved from the UK to Northern Ireland, and has launched legal action over the British government’s unilateral extension of the grace period. The media has dubbed the row the “sausage war” because it affects the movement of chilled and processed meat.

British Prime Minister Boris Johnson then said he is optimistic about talks with the EU on smoothing out the rough edges on trade with Northern Ireland, adding that the dispute would not overshadow the upcoming summit of the Group of Seven (G7) leaders.

Dollar-to-pound exchange rate forecast

MUFG Bank recommends buying the pound against the dollar, citing market expectations that the Bank of England will raise interest rates earlier than the Federal Reserve.

It recommends opening a long position on the pound and the US dollar with a target price of 1.4585, which will be the highest level since the 2016 Brexit referendum, and a stop loss at 1.3950.

“While the Fed is preparing market participants for the fact that the upcoming FOMC meetings will discuss the issue of reducing quantitative easing to limit the risk of a repeat of the tantrum, Bank of England officials have recently taken another step, talking about the prospect of raising rates as early as next year,” said MUFG currency analyst Lee Hardman.

Currency markets have recently been limited by the range, there is a decrease in volatility. The Deutsche Bank currency volatility index hit its lowest level since February last year. The U.S. dollar found little support on Tuesday as investors braced for inflation data after lower-than-expected employment data eased concerns about an early cut in the Federal Reserve’s monetary stimulus.