Brexit Customs Union Negotiations Continue to Fail – Pound US Dollar (GBP/USD) Exchange Rate Falls
The outlook for the Pound US Dollar (GBP/USD) grew slightly gloomier on Wednesday as markets responded to fresh hawkish comments from members of the US Federal Reserve and ongoing stagnation in the Brexit negotiation process.
Frustrations have abounded since the Brexit war Cabinet failed to reach agreement on a decision regarding the customs union – with many concerned that staying within the union would mean compliance with the bloc’s freedom of movement laws and the jurisdiction of the European Court of Justice.
This anxiety was compounded today by news that the Scottish Parliament has voted against the Prime Minister’s latest Brexit legislation by a substantial margin.
Whilst this vote is not legally binding by any means, it does put the Prime Minister in a slightly delicate position – does London ignore the vote move ahead regardless? Or make greater concessions in order to try and prevent a possible crisis?
Ultimately, Brexit negotiation concerns continue to bubble beneath the surface for Sterling, and whilst the Pound has gained some resilience since the transition period was agreed, the prospect of a cliff-edge exit is still very much a possibility.
US Dollar (USD) Exchange Rates Supported by Monthly Rise in Industrial Production
The US Dollar (USD) gained additional support on Wednesday as investors responded to a sizable increase in US industrial production.
According to the Federal Reserve, industrial production increased by 0.7% in April, beating expectations of a 0.6% rise and the previous period’s 0.5% score.
This was largely due to a 0.5% rise in manufacturing output, a 1.1% rise in mining output and a 1.9% climb in utility output.
The big picture here is that American factories, oil wells and mines are humming with activity, and whilst there are some concerns that the global economic upswing might have peaked, the outlook for the US manufacturing sector is still very bright.
This news helped extend the ‘Buck’s’ lead against Sterling, but rate hike optimism for the US Fed is still the primary cause for heightened demand for the US Dollar.
US Fed Hawks Dominate – What can we expect for the Pound US Dollar (GBP/USD) Exchange Rate?
US Dollar (USD) bulls are currently celebrating recent hawkish remarks from San Francisco Fed President John Williams.
Not only did Williams claim that inflation is moving towards the bank’s target of 2%, he also asserted that he still sees three to four rate rises in 2018 as appropriate, that the accelerated consumer prices are ‘very reassuring’ and that he expects growth of 2.5% over the next two years.
This news, combined with similarly hawkish comments yesterday from Cleveland Fed President Loretta Mester, positioned the US Dollar as the more attractive option given the likelihood of at least 3 more rate rises this year.