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GBP USD Exchange Rate Drops -0.7% as Brexit Worries Grow

October 12, 2017 - Written by Tim Boyer

The Pound made only a small advance against the US Dollar yesterday, opening at an exchange rate of 1.3219 and closing around 1.3236.

More recently, the Pound has lurched down in the pairing, trading in the region of 1.3144.

Brexit Focus: Concerning Comments about Brexit Deadlock Drag on GBP

Today’s Pound losses are a clear symptom of high trader uncertainty, following a joint press conference by David Davis and Michel Barnier.

In a somewhat predictable outcome, Barnier was not ecstatic about the progress of talks so far, warning that he was not yet ready to discuss a UK transitional deal.

He also added that negotiating teams had hit a deadlock over the issue of a UK ‘exit bill’, payable to the EU on leaving the multinational union.

Barnier called this deadlock ‘very disturbing’, something quickly picked up on by traders. Barnier has stated a desire for ‘simple’ solutions to the issues of the exit bill, the Irish border and the rights of EU citizens, but right now these matters seem anything but simple.

Barnier did close on a somewhat optimistic note, however, predicting that there could be ‘decisive progress’ made by Christmas.

For his part, Davis stuck to the script and put on a brave face. The Brexit Secretary conceded that work still needs to be done, but has added that ‘we have made further progress’.

In his forward-facing conclusion, Davis has stated that;

‘Our aim is to provide as much certainty as possible to business, citizens and the European Union…on this we are making real and tangible progress.

But I make no secret of the fact that to provide certainty we must talk about the future.

The Prime Minister’s speech set out the scale of our ambition for our deep and special partnership with the European Union.

And also laid out the case for a simple, clear and time-limited period of implementation on current terms.

I have always been clear that we would enter these negotiations in a constructive and responsible way.

The work of our teams and the substantial progress that we have made over recent months proves we are doing just that.

As we look to the October European Council next week, I hope the Member States will recognise the progress we have made, and take a step forward in the spirit of the Prime Minister’s Florence speech.

Doing so will allow us to best achieve our joint objectives by turning the ideas we have explored into concrete shared proposals.

That’s the way that we’ll move towards a deal that works for both the United Kingdom and the European Union’.

US Dollar Update: USD Appreciates after September Fed Minutes

The US Dollar to Pound advance seen today comes in the wake of Federal Reserve minutes for September.

On the month, it was seen that the Fed continues to expect a gradual path of interest rate hikes, summarised in the phrase;

‘Consistent with the expectation that a gradual rise in the Federal funds rate would be appropriate, many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged’.

There was also broad optimism that inflation might hit the Fed’s 2% target in the future, when the minutes showed that;

’Many participants continued to believe that the cyclical pressures associated with a tightening labour market or an economy operating above its potential were likely to show through to higher inflation over the medium term.

In addition, many judged that at least part of the softening in inflation this year was the result of idiosyncratic or one-time factors, and, thus, their effects were likely to fade over time’.

GBP USD Exchange Rate Forecast: Will GBP Turn Volatile on Haldane Speech?

After an eventful morning, the Pound could be moved this afternoon by a speech from Bank of England (BoE) official Andy Haldane.

Haldane will be giving remarks in the US and could touch on the matter of interest rates. If he suggests that a UK interest rate hike could occur next month, the Pound may appreciate against the US Dollar.

This afternoon will also bring speeches from Federal Reserve officials; if these policymakers back a December interest rate hike then the US Dollar could remain dominant against the weak Pound.
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