GBP/USD Exchange Rate Rises as Hopes of Brexit Deal boost Sterling
The Pound to US Dollar (GBP/USD) exchange rate rose by 0.6% this morning, with the pairing currently trading around $1.304.
Sterling rose against the ‘Greenback’ today after Michel Barnier, the European Union’s (EU) Chief Negotiator, said that the EU was now prepared to discuss ‘trickier’ subjects over Brexit.
Mr Barnier said:
‘We will seek the necessary compromises on both sides in order to reach an agreement and we will do so right up until the last day until it’s possible to do so. Our doors will remain open until the very end.’
Consequently, GBP has benefited from renewed hopes that Downing Street and Brussels could compromise.
Accordingly, this has increased likelihood that the two sides could secure a post-Brexit trade deal before the year-end.
In UK economic data, today saw the release of September’s Public Sector Borrowing figure, which rose above forecasts to £35.367 billion.
Rishi Sunak, the British Chancellor of the Exchequer, commented on the soaring borrowing figures:
‘Whilst it’s clear that the coronavirus pandemic has had a significant impact on our public finances, things would have been far worse had we not acted in the way we did to protect millions of livelihoods.
‘Over time and as the economy recovers, the government will take the necessary steps to ensure the long-term health of the public finances.’
However, GBP investors are remaining cautious about the British economy after the Bank of England (BoE) hinted at taking interest rates into negative territory.
US Dollar (USD) Falls as US Stimulus Hopes Dampen Demand for the Safe-Haven ‘Greenback’
The US Dollar (USD) fell today as hopes for a US stimulus package has continued to undermine the safe-haven appeal of the ‘Greenback’.
Both the White House and the congressional Democrats appear to have kept talks on a new fiscal stimulus package alive, buoying hopes that America will provide a Covid-19 stimulus package ahead of November’s presidential elections.
However, analysts at ING, warned:
‘Markets remain reasonably sceptical – even if a bipartisan deal is agreed, it is still expected to face the resistance of many Republican policymakers (who don’t view such a large package favourably), and this is despite President Trump’s pledge to put pressure on fellow party members to get on board with a potential deal.’
US Dollar (USD) investors will be awaiting today’s speech from Lael Brainard, a member of the Board of Governors at the Federal Reserve.
Any downbeat comments about America’s economy could further boost demand for risky assets, dragging down the USD/GBP exchange rate.
GBP/USD Outlook: Could a Brexit Compromise Boost Sterling?
Pound (GBP) traders are bracing for tomorrow’s speech from the Bank of England’s (BoE) Governor Andrew Bailey. Any hints of a possible negative interest rate would prove GBP-negative as the outlook for the British economy deteriorates.
However, if further signs of a UK-EU compromise on a post-Brexit trade deal manifest, then Sterling could maintain its upward trajectory.
The US Dollar (USD) will remain sensitive to global risk sentiment this week, with any signs of a US stimulus package on the horizon proving USD-negative.
In US economic news, tomorrow will see the release of the latest Initial Jobless Claims for October.
If joblessness continues to rocket, then we could see the ‘Greenback’ claw back some of its losses as concerns grow over the state of the world’s largest economy.
The GBP/USD exchange rate could continue to head higher if the EU shows more willingness to compromise on Brexit in the days ahead.
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