GBP/USD Exchange Rate Slides as US and China ‘Oscillating Between a Cold War and a Cold Peace’
This morning, the Pound US Dollar (GBP/USD) exchange rate fell, and is now trading at an inter-bank rate of $1.3150.
Prime Minister Theresa May has been urged to secure changes on the issue of the Irish backstop with the European Union, which has not indicated that it would allow a time limit on the backstop – although EU Chief Negotiator, Michel Barnier, said last week a time limit would be ‘useless’.
Former UK Foreign Secretary Boris Johnson indicated that he would back the deal if a so-called ‘freedom clause’ was included, stating that such an escape route would be ‘unadulterated good Brexit news’ for which Theresa May would win the ‘full-throated’ support of the UK.
Meanwhile, former Singapore Foreign Minister George Yeo stated that the US-China tensions would continue for the next 20 years, saying that the relationship was currently ‘oscillating between a cold war and a cold peace.’
Signs of heightened tensions caused investors to jump into the safe-haven US Dollar as a further sign of global risk sentiment, causing ‘Greenback’ to gain across the board.
Last Week: Pound Sterling (GBP) Slips on Hammond No-Deal Brexit Comments
At the end of last week’s session UK Chancellor Philip Hammond stated that in the case of a no-deal Brexit:
‘There will be very significant disruption in the short term and a very significant hit to our economy in the medium to long term.’
Following these comments the GBP/USD pairing slipped, although this did little to stop Sterling from rebounding and reaching a high of $1.32 over the course of Friday evening, the Pound’s largest weekly rise in more than 15 months.
Last Week: US Dollar (USD) Slides despite End to Government Shutdown
On Friday, US President Donald Trump ended the longest government shutdown in history, promising that by Friday unpaid federal workers would receive two consecutive pay cheques.
Nevertheless President Trump stated that the reopening was only temporary and it seems likely that the shutdown would resume after three weeks. He stated:
‘If we don’t get a fair deal from Congress, the government will either shutdown on Feb. 15, again, or I will use the powers afforded to me under the laws and the Constitution of the United States.’
GBP/USD Outlook: Will US-China Relations Cool Enough for Investors to Pull Out of Safe-Haven USD
Tomorrow’s parliamentary vote on Theresa May’s Brexit ‘Plan B’ could cause some volatility for the GBP/USD pairing, with various amendments also being voted upon.
If amendments are passed that could delay Brexit or prevent a no-deal, the Pound is likely to rise.
Also likely to cause the pairing to fluctuate is the ongoing to-and-fro between the US and China, as this week Chinese Vice Premier Liu is due to engage in talks with US officials from the 30 to 31 January: if the talks are successful the safe have USD could drop
The Federal Reserve’s will reveal its latest interest rate decision on Wednesday, with current expectations being that it will remain steady at 2.5%.