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Irish Border and US Tax Reforms Promise GBP/USD Volatility Ahead

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After another day of Brexit-linked uncertainty, the Pound has fallen further against the US Dollar.

The pairing traded in the region of 1.3516 on Monday, but has since dropped to 1.3448 on Tuesday afternoon.

This deterioration comes as the DUP makes its views on Brexit more clear.

The party has stressed that it doesn’t want Northern Ireland to retain any significant ties to the EU after Brexit, as this could see it drift away from the rest of the UK by extension.

(First published December 4th, 2017)

Widespread optimism about Brexit progress has boosted the Pound against the US Dollar today, although both currencies could face near-term turbulence.

Irish Border Solution could Push GBP/USD Exchange Rate to New Highs

The Pound has made moderate gains against the US Dollar on December 4th, with traders flocking to the UK currency after a flurry of Brexit updates.

The bulk of these have concerned the Irish border, a key part of Brexit negotiations which speculators believe could be resolved shortly.

Economists have been most drawn to news that the UK government will not seek ‘regulatory divergence’ between Ireland and Northern Ireland.

It isn’t clear what exactly this means yet, but some optimists believe that Northern Ireland might be able to remain within the EU free trade agreement.

Problematically, however, this continued closeness with the EU might not sit well with the Democratic Unionist Party (DUP).

While a lack of barriers between Ireland and Northern Ireland seems agreeable on paper, the DUP remains an uncertain element.

The DUP backed the ‘leave’ campaign in the EU Referendum, so any signs of a compromise with the EU might not go down too well.

Delivering a full statement on recent developments, DUP leader Arlene Foster has said;

‘Northern Ireland must leave the European Union on the same terms as the rest of the United Kingdom and we will not accept any form of regulatory divergence which separate Northern Ireland economically or politically from the rest of the UK.

The economic and constitutional integrity of the United Kingdom must not be compromised in any way.

[Theresa May] has been clear that the UK is leaving the European Union as a whole, that the territorial and economic integrity of the United Kingdom will be protected.

The Republic of Ireland for their part claim to be guarantors of the Belfast agreement but they are clearly seeking to unilaterally change that Belfast agreement without out input or our consent. We will not stand for that’.

If an agreeable solution to the Irish border issue can be hammered out, the Pound could hit fresh highs against the US Dollar.

Getting the Irish border wrapped up would remove one of the three major barriers for the UK, before it can start discussing post-Brexit trade in earnest.

US Dollar on Track for Advance if National Tax Reforms Finally Become Law

A recent source of US Dollar support has been the passing of tax reform plans in the US Senate.

Although these plans were only approved by a wafer-thin margin, they have nonetheless taken another step towards actually being made law.

The tax plans are not without their critics; some believe that they will ultimately only benefit the already-wealthy, rather than the poorest members of the US population.

Whether they actually work or not, the implementation of the sweeping tax reforms could send the US Dollar soaring.

After the high profile failure of efforts the repeal and replace the Affordable Care Act earlier this year, the current administration needs some kind of a victory to restore confidence.

Recent Interbank GBP USD Exchange Rates

At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.3516 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.7399.