Investors Brush aside Claims of Brexit Progress as Uncertainties Keep Lid on Pound to US Dollar
Despite weekend claims by the UK government that 95% of a Brexit withdrawal deal had been agreed, uncertainties about the process persist which has prevented the Pound to US Dollar (GBP/USD) exchange rate from climbing this morning.
Last week saw GBP/USD open at the level of $1.3152 and tumble almost a cent, closing on Friday evening at $1.3072.
GBP/USD has since been able to hold above last week’s low of $1.3017, but is only trending slightly higher than the week’s opening level at the time of writing.
The Pound (GBP) remains weak despite the weekend’s news that UK Prime Minister Theresa May was planning to tell the UK House of Commons that the Brexit deal was 95% completed.
Pound (GBP) Fails to Climb as Irish Border Fears Persist
Unusually, Theresa May is expected to give MPs more details on which parts of the Brexit deal have now been agreed. She will speak to the House of Commons today.
It is perceived that her comments will be made partially in hopes of quelling recent criticism from backbenchers in her Conservative Party.
However, despite fears that a UK-EU deal may be reached too late, as well as concerns that there is still no deal on the issue of Ireland’s border, May also said that the hardest parts of negotiations were still ahead.
In an article for The Sun, May said:
‘The very last stages of the talks are going to be the hardest of all.
Does that mean I think the negotiation will get tougher before we reach our goal? Yes,
Do I have some long and difficult days ahead? I’m sure I do.’
Analysts continue to agree that political uncertainty is weighing on the Pound. According to Jeremy Stretch, head of G10 currency strategy at Canadian Imperial Bank of Commerce:
‘Theresa May has actually managed to unify the Conservative Party, unfortunately it’s in opposition to her plans,
It’s going to be a scenario where there is inherent political risk, accordingly that’s probably going to keep sterling on the defensive.’
US Dollar (USD) Strength Limited by Risk-Sentiment
The US Dollar (USD) was unable to benefit much from the Pound’s early week weakness, as investors were hesitant to buy safe haven currencies.
Risk-sentiment has been improving slightly in recent weeks, with markets less anxious about the potential impact of US-China trade tensions and the US Dollar sliding from the highs it saw in August and September.
The latest news from Chinese markets has made investors a little more willing to take risks. On Monday the Chinese government took an optimistic stance on China’s economic outlook. According to Kit Juckes from Societe Generale:
‘Reassurance from the Chinese leadership that they will support the economy have triggered the biggest one-day increase in equity indices since 2015 and has given markets everywhere a risk-friendly bias to start the week.’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook: Investors Await Brexit Breakthrough
As November draws nearer, Pound traders are increasingly anxious about what could happen if the UK and EU do not reach an agreement on the issue of the Irish border soon.
The issue of how Ireland can maintain a soft border with both the rest of the EU and the UK’s Northern Ireland has been one of the contentious issues of Brexit since the process started in 2017.
There still appears to be little progress on reaching some kind of deal on the border that both the UK and EU agree on. As a result, markets are still anxious about the possibility that Brexit talks could fall through, leading to a worst-case scenario ‘no-deal Brexit’.
Even though Theresa May is to claim that 95% of a deal has been agreed, the Pound is unlikely to strengthen much until a deal on Ireland starts to look more realistic.
This week’s UK data includes CBI’s latest business optimism and industrial trends reports.
Upcoming US data may be a little more influential in comparison. US new home sales from September and PMI projections for October will be published on Wednesday.
Durable goods orders from September will be published on Thursday, with the key US Q3 Gross Domestic Product (GDP) projection coming in on Friday.
However, if risk-sentiment continues to improve the US Dollar’s potential for strength may be limited and the Pound to US Dollar (GBP/USD) exchange rate is more likely to avoid losses.