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GBP USD Exchange Rate Strengthens as Brexit Talks Set to Begin

June 19, 2017 - Written by John Cameron

The Pound US Dollar (GBP USD) exchange rate rallied at the start of the European session this morning as investors appeared unusually optimistic at the start of formal Brexit negotiations.

Investor Optimistic as Brexit Talks Get Underway


At the time of writing Sterling is up by around 0.15% against the US Dollar today as markets seem upbeat about the start of Brexit talks.

Some analysts suggest that recent warnings by UK businesses and Chancellor Philip Hammond about the consequences of leaving the EU may cause the government to take a softer approach to negotiations.

Five major UK business bodies called for the government to ensure access to single market is retained until a new trade agreement could be put in place, whilst Hammond warned that leaving the EU without a deal would be a ‘very, very bad outcome’.

Markets also hope that the government’s catastrophic defeat in the general election may also alter the government’s plans for negotiations as it suggests that the public was not as supportive of a hard Brexit as Theresa May had hoped.

However with the UK government’s position still unclear and a great deal of uncertainty still surrounding negotiations, many analysts predict any rise in the Pound to be temporary.

Kit Juckes, Macro Strategist at Societe Generale said;

‘The UK position is as clear as mud’ beyond growing signs that the UK wants free trade without being part of the customs union or conceding grounds on border controls.’
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‘Sterling’s probably range-bound. Any rally triggered by ‘soft Brexit’ hopes is probably temporary.’

There are also some doubts amongst investors over the ability for the government to offer a unified front in talks, will rumours running rampant that Theresa May could face a leadership challenge over her disastrous decision to call an early election, which saw the conservatives lose their majority and forced into forming an uneasy alliance with the DUP.

US Dollar Remains Robust on Fed Optimism


Meanwhile the US Dollar remains relatively resilient ahead of a speech by Federal Reserve Bank of New York President, William Dudley later today.

The speech will kick off the start of a number of public appearances by Fed officials this week following the central bank’s decision to raise interest rates last week.

Fed President Janet Yellen struck a hawkish tone in last week’s rate meeting as she suggested a third rate hike will still go ahead this year despite the apparent slowdown in the US economy over the last few months.

Economists are hopeful that other members of the FOMC will echo this sentiment in a number of speeches over the next couple of days, with the US Dollar likely to advance if the majority agree with her.

Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo said;

‘In the wake of Friday's weak US data, Mr Dudley could provide insight into whether the Fed is still poised to continue normalising monetary policy. My view is that Dudley won't sound too dovish, and thus allow the dollar's gradual rise to resume.’

GBP USD Forecast: Sterling Likely to Fluctuate as Brexit Talks Progress


Looking ahead the GBP USD exchange rate is likely to be met by increased volatility over the coming days as markets react to the tone of early Brexit talks, with the Pound likely to plummet if negotiations appear strained.

Meanwhile excluding the Fed speeches, the first piece of notable US data this week will the existing Home Sales figures released on Wednesday, with the US Dollar likely to weaken if sales fell from 5.57m to 5.55m last month as economists predict.

Current Interbank Exchange Rates


At the time of writing the GBP USD exchange rate was trending around 1.2795 and the USD GBP exchange rate was trending around 0.7813.

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