The Pound US Dollar exchange rate looks on track to sustain gains this week. Despite concerns about UK political news and the Brexit process, the US Dollar has been held back by growing concerns that the US Republican Party will delay plans for corporate tax cuts until 2019.
GBP USD began the week trending at the level of 1.3077. The pair was unable to hold Tuesday’s high of 1.3175, but still trended near the level of 1.3150 on Friday morning.
Pound (GBP) Outlook Limited by Brexit Negotiation Uncertainty
The Pound outlook has been volatile in over the past seven days, as Britain’s domestic political concerns have kept the currency from benefitting from Brexit speculation.
Initially, investors hoping for Brexit negotiations to speed up bought the Pound in anticipation of Friday’s next round of talks.
However, throughout the week the UK Conservative Party has been focused on scandals that have left to multiple high-profile resignations.
This led to market concerns about the strength of the Conservative Party and the staying power of its leader, UK Prime Minister Theresa May.
Analysts have been anxious that May’s position could be undermined if it is seen as weak, and that this would have a negative impact on already slow Brexit negotiations.
On Friday, as the latest round of talks approached, UK Prime Minister May made an effort to reassert her power and a focus on the Brexit process by announcing the exact time and date the UK would be leaving the EU.
May stated that the EU Withdrawal Bill, due to be discussed in Parliament next week, will draft the formal Brexit time of 23:00 GMT 29/03/19 into law.
While she asked for MPs on ‘all sides’ to help scrutinise the bill, she also issued a warning against those who would attempt to stop or slow down the process.
Sterling has seen mixed trade amid the domestic political news, but that could change depending on how upcoming Brexit talks go.
If the talks indicate that the first phase is speeding up and nearing conclusion, the Pound is likely to see a surge in demand, as investors become more hopeful that UK-EU trade talks could begin in the coming months.
On the other hand, negotiations could remain in a perceived ‘deadlock’, which would cause the Pound outlook to remain limp and the currency may struggle to capitalise on recent US Dollar weakness.
Next Tuesday will see the publication of Britain’s October inflation results, but unless these are surprising they are unlikely to take market focus away from Brexit progress.
US Dollar (USD) Weighed by Fresh Tax Reform Concerns
After weeks of being supported by a hawkish Federal Reserve outlook and relatively strong US data, the US Dollar saw weaker performance towards the end of this week due to some uncertainties about US tax reform.
Markets had been hopeful that US President Donald Trump’s proposals for tax reform would successfully make it through Congress.
However, the tax bill from Senate Republicans differs from the House Republican bill in one key area.
Both versions of the bill proposed that the corporate tax rate would be cut from 35% to 20%, but unlike the House bill the Senate corporate tax cut would not be implemented until 2019.
On top of this, investors are also concerned that tax reform plans will face obstacles in Congress. The Republican Party’s plans for US healthcare were repeatedly blocked in Congress throughout the summer and investors fear that similar obstacles are possible with taxes.
With the Federal Reserve rate hike outlook steady and recent US data relatively solid, the biggest uncertainty in US Dollar trade at the moment is tax reform.
The Republican Party is expected to begin tackling tax plans before the end of November, so it’s likely this will be the focus of ‘Greenback’ trade in the coming weeks.
Key US data due in the coming week includes October’s inflation results, but USD investors may simply overlook this data in favour of potential tax news.
GBP USD Interbank Rate
At the time of writing this article, the Pound US Dollar exchange rate trended in the region of 1.3154. The US Dollar to Pound exchange rate traded at around 0.7603.