The Pound US Dollar (GBP USD) exchange rate fluctuated on Thursday with markets unsure if Westminster will successfully secure a Brexit deal before Friday’s deadline.
Barnier Warns of Deadline for Westminster DUP Deal – GBP USD Exchange Rate Tumbles
EU Chief Brexit Negotiator Michel Barnier has alerted member states that the British government has until Friday to secure an agreement with the Democratic Unionist Party (DUP) on the subject of the Irish border, or negotiations will not move onto the next stage in December.
Downing Street is reportedly hurrying to work on a fresh solution to this situation, hoping to satisfy both the Republic of Ireland and the DUP in the process.
If a deal is not secured by Friday evening, however, then the UK risks the delay of trade and transitionary talks, with the latter having the potential to be postponed until March 2018.
This uncertainty regarding the future of the UK economy would leave UK businesses floundering, with investment decisions for the year ahead made without full awareness of the future of trade, or indeed the rights of citizens.
Markets now wait with baited breath for any announcement that might signal progress (or a lack thereof) with the Pound US Dollar fluctuating back and forth in the meantime.
US Fed Rate Hike Expectations Remain High, US Dollar (USD) Exchange Rates Climb
The US Dollar is currently riding a wave of venerable optimism, with markets anticipating a third rate hike from the US Federal Reserve this month and great strides being made in regards to the Republican push for tax reform.
According to a Reuters poll of economists, the Federal Reserve is still expected to push to raise interest rates in December, with all 103 people questioned asserting that the federal funds rate will go up once again by 25 basis points.
Brett Ryan, Senior Economist at Deutsche Bank went further, asserting that a rate hike is both warranted and will not slow the US economy.
Ryan stated:
‘The fed is still accommodative at the moment and we are still some ways away from the neutral fed funds rate which would in the Fed’s view be closer to the 2.75%. The Fed can hike without slowing the economy’.
Despite this optimism, some remain concerned that limp levels of inflation within the US will delay a further increase, though markets do forecast that consumer prices will finally begin to inch towards the target of 2% throughout 2018.
What’s Next for Trump Tax, and What Could it Mean for the GBP USD Exchange Rate?
US President Donald Trump and the Republican congressional leaders are now on the brink of achieving one of Trump’s primary campaign promises; the centrepiece reform of tax legislation.
Having successfully passed the tax bill though the Senate, however, Republicans are now faced with another hurdle; the reconciliation of the House version of the bill and the Senate version.
Whilst markets are now confident that the reform will occur, exactly what form it takes is still yet to be seen.
The Senate version of the bill, for example, enacts its 20% corporate tax rate in 2019 – a 1 year delay for corporate tax cuts compared to the House version.
Beyond this, the Senate version is modified to sacrifice elements in order to reduce the potential impact on the US deficit.
Republican leaders are now appointing conferees – a group of people that will essentially work out and reconcile the massive differences – with a heavy focus on getting things done promptly.
If the bill is successfully reconciled and corporate tax cuts are immediately initiated, then the GBP USD exchange rate will likely plummet, if, however, major concessions are made, or delays occur, then the US Dollar may come under new pressure.
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