Following a surprise statement from the Bank of England’s (BoE) Andy Haldane, the Pound jumped to an exchange rate of 1.2707 against the US Dollar.
Since then, Sterling has fallen back over persistent fears about how the UK will fare in Brexit negotiations.
Pound Predicted to Drop if Brexit Talks Turn Sour
Ever since the EU Referendum vote in June 2016, the Pound has continually been impacted by the historic decision to leave the EU. This Brexit-linked volatility is only expected to intensify in the coming weeks and months, given that talks are now finally underway.
It is expected that talks could take up to two years, given the extreme complexity associated with separating the UK from the EU. Even at an early stage, however, there are signs that talks may not be going as smoothly as would be hoped.
On the first day of talks, the UK’s David Davis and the EU’s Michel Barnier met under good terms. The two exchanged gifts and outlined their stance on Brexit; Davis stated that;
‘We are starting with a positive and constructive tone, determined to build a strong and special relationship’.
Barnier, meanwhile, got down to more pressing issues by declaring;
‘We must first tackle the uncertainties caused by Brexit: first for citizens but also for beneficiaries of EU policies and the impact on borders – in particular Ireland’.
The cordial talks soon gave way to a tenser atmosphere, however, as Davis was denied a request to discuss the UK-EU trade relationship until the cost of leaving is determined.
As talks continue, the Pound could slide if it looks like EU officials are holding all the cards.
If initial hiccups prove to be minor, however, then the Pound may appreciate on trader hopes that the UK will get a good Brexit deal against the odds.
US Dollar Slump Possible if Trump’s ‘Great Wall’ Goes Ahead
At a time when US traders are anxiously watching for signs of a future interest rate hike, there could be a more damaging issue on the horizon.
One of President Donald Trump’s biggest promises during the 2016 election campaign was to build a vast border wall with Mexico.
Five months after taking office, the wall is still no closer to completion, but signs that construction is going ahead may trigger an alarming US Dollar slump.
This is because the contentious issue of payment remains unresolved. During the campaign, Trump declared that Mexico would pay for the wall, but since becoming President, it has become clear that this will not stick.
The Trump budget unveiled in May suggested that $1.6bn would initially be spent on the wall, while a recent Trump rally has brought the idea that solar panels could (eventually) be used to pay off the wall’s massive cost.
If it looks like the US will have to solely foot the extraordinary bill for the monumental construction, then the US Dollar could crash.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.2662 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.7897.
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