GBP USD Exchange Rate Slumps as Brexit Talks Appear to Stall Before Official Negotiations Begin

May 2, 2017 - Written by John Cameron

STORY LINK GBP USD Exchange Rate Slumps as Brexit Talks Appear to Stall Before Official Negotiations Begin

The GBP USD exchange rate continued to slide overnight on Monday as Prime Minister Theresa May’s dinner with European commission’s president, Jean-Claude Juncker yesterday did not inspire confidence in the Brexit process.

May faces reports that she is ‘living in another galaxy’ as Juncker reportedly left Downing Street ‘ten times more sceptical than I was before’ according to a supposed transcript of the meeting published in German Newspaper Frankfurter Allgemeine Zeitung.

Juncker is also reported to have told the PM that there could be no discussion of a future trade deal between the two sides until an agreement had been reached over the rights of citizens living abroad and the payment of an expected €60billion divorce bill.

According to a source from the Guardian, Juncker is reported to have said;

‘There was no point in having even a first meeting unless the UK accepted the wording of the treaty and the political reality of a united EU27.’

While May dismiss the report as ‘Brussels gossip’ investors were notably spooked by the claims, causing Sterling to tumble.

However the Pound was able to claw back some of its losses this morning following the release of the UK’s latest Manufacturing PMI.

According to data released by IHS Markit, activity in the UK’s manufacturing sector surged from 54.2 to 57.3 in March, reaching a new three-year high and beating expectations that it would slip to 54.

Rob Dobson, senior economist at IHS Markit said;

‘The weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, especially in the Eurozone.’

Meanwhile the US Dollar was strengthened yesterday as U.S. Treasury Secretary Steven Mnuchin suggested the possibility of ultra-long-term bond issuance, causing investors to flock to US bonds.

Mnuchin appeared confident that issuing bonds past the usual 30-year limit could ‘absolutely make sense’ causing demand for both 30-year and 10-year yields to jump.

However with markets worrying about the Trump’s administrations ability to boost US growth after a disappointing Manufacturing PMI on Monday, the ‘Greenback’ found its advance hampered somewhat yesterday evening.

Looking ahead the GBP USD exchange rate may stumble again on Wednesday if the UK’s Construction PMI slips from 52.2 to 52 as expected, although investors are more likely to focus on Thursday’s Services PMI, which could be a major blow to Sterling if forecasts that activity will slide from 55 to 54.5 prove to be correct.

Meanwhile the US Dollar may strengthen following Wednesday’s rate decision from the Federal Reserve.

While the Fed is not expected to raise interest rates this month, any hints that the central bank plans to tighten monetary policy in June’s meeting would likely sent the ‘Greenback’ higher.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.28 and the USD GBP exchange rate was trending around 0.77.

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