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GBP USD Exchange Rate Volatile after Leaked 'Brexit' Memo Causes Pound to Plummet

November 16, 2016 - Written by Toni Johnson

The GBP USD exchange rate has become increasingly unstable since the release of a leaked memo yesterday that indicated that the UK government still has no clear strategy on 'Brexit'.

Pound US Dollar (GBP USD) Pressured by 'Brexit' Memo



Market sentiment towards the Pound (GBP) dropped yesterday as the leaked 'Brexit' memo stoked investor uncertainty surrounding 'Brexit'.

The document suggests that 30,000 additional civil servants may be required to deal with the complex task of splitting from the EU, caused Sterling to plummet by nearly a cent against the US Dollar (USD) as it was suggested that the government currently has no concrete 'Brexit' plans.

The memo also added to rumours that the government is split on how to handle 'Brexit', as it identified a divide in the cabinet between those favouring a ‘hard Brexit' and those who favour the UK retaining access to the single market.

The Pound was able to recover some of its losses later in the day however as Prime Minister Theresa May refused to recognise the document and denied claims that the UK government had no 'Brexit' plans. Meanwhile, consultancy firm Deloitte, who commissioned the memo, admitted that it was written without access to Number 10.

US Dollar Strengthened by Fed Rate Hike Bets



The US Dollar continues to strengthen as investors increasingly bet that the Federal Reserve will seek to hike rates in December.

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Despite worries that a victory for Donald Trump in the 2016 US presidential elections would make it less likely that the Fed would raise interest rates, it appears that it has done the exact opposite with market predictions of a December rate hike now at around 94%.

This is largely thanks to the US economy performing better than expected over the last few weeks, as seen yesterday with the impressive rise in US advance retail sales from 0.6% to 0.8% in October after it was predicted to remain unchanged.

GBP USD Exchange Rate Forecast: Pound Slides as UK Employment Data Mixed



The GBP USD exchange rate tumbled this morning after the release of some mixed UK employment data. Despite unemployment expectedly dropping to an 11-year low, falling from 4.9% to 4.8% in September, the Pound was unable to advance as it struggled to cope with a significant rise in jobless claims. Figures showed those claiming unemployment benefits unexpectedly surged from 5.6k to 9.2k, after predictions that it would fall to 2.0k in September.

The Pound may rally later today after some disappointing data from the US, as US industrial production failed to meet expectations of 0.2%, instead falling short at 0.0%. The producer price index unexpectedly fell from 0.3% to 0.0%.

However the impact of the US data is likely to be negligible as the increasing odds of a December rate hike from the Fed will make investors reluctant to drop the US Dollar.

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