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GBP USD Exchange Rate Tumbles as Government Instability Prompts Brexit Concerns

November 9, 2017 - Written by John Cameron

The Pound US Dollar (GBP USD) exchange rate tumbled this morning as investors fear that the recent chaos in the UK government will hamper Brexit negotiations

Sterling Weakened by Apparent Political Instability/

The Pound beat a hasty retreat against the US Dollar earlier this morning as markets became increasingly downbeat on the pairing as political uncertainty in the UK threatens to complicate Brexit talks.

The increased political uncertainty comes in the wake of Priti Patel’s resignation from her cabinet position as international development secretary yesterday, with her resignation being prompted by reports that she held a number of unauthorised meetings with Israeli officials in recent months.

In her resignation letter Ms Patel said;

‘While my actions were meant with the best of intentions, my actions also fell below the standards of transparency and openness that I have promoted and advocated.’

This is the second cabinet reshuffle for Theresa May in a little over a week after Sir Michael Fallon resigned as defence secretary last Wednesday following allegations of sexual misconduct.

The ever rotating cast of cabinet ministers and apparent infighting at the top of the Conservative party has done little to shake of concerns of instability in the heart of UK government, with EU leaders reportedly even already preparing for the possible ‘fall of Theresa May before the new year’, with expectations it will led to either ‘a change of leadership or elections leading to a Labour victory.’

This instability has also cast considerable doubts over the progress of Brexit negotiations, which resumed today for the first time since the EU voted to delay trade talks due to a lack of progress on an exit agreement.

While both sides have discussed the possibility of speeding up the pace of negotiations to ensure that trade talks can begin by the end of the year, EU officials have suggested that the ‘weakness of Theresa May makes [Brexit] negotiations very difficult.’

US Dollar Wobbles Ahead of Senate Tax Proposals

Meanwhile the investors in the US Dollar are a little unsettled today ahead as the currency’s fortunes are hinged on the release of the US Senate’s tax cut proposals later today.

Markets are bracing for a dip in the ‘Greenback’ as analysts suggest that the Senate’s tax proposals are likely to contain a number of differences to Trump’s tax reforms.

Investors fear that any deviations between the tax proposal will likely lead to a considerable reconciliation process, likely leading to delays or even the watering down of the proposed tax cuts.

Steven Dooley, currency strategist for Western Union Business Solutions in Melbourne said;

‘There’s very much a risk of disappointment, The U.S. dollar could go through a weakening phase on the back of uncertainty around that tax reform.’

Trump’s tax reforms has lent significant support to the US Dollar in recent weeks as investors how that the substantial tax cuts will help to stimulate growth in the US.

Hopes were spurred further in October with the passing of Trump’s budget as it was seen as opening the way for the implementation of tax reform.

GBP USD Forecast: UK Trade Deficit to Narrow?

Looking ahead the GBP USD exchange rate may be able to mount a recovery tomorrow with the release of the UK’s latest trade balance as economists forecast that Britain’s trade deficit will have narrowed from £5.63bn to £4.6bn in September.

However the Pound could see considerable losses if September’s trade figures continue the trend for underperforming.

Meanwhile the US Dollar may be weakened at the end of the week’s session by the release of the latest US Consumer Confidence index, with expectations that sentiment will have tumbled slightly in November.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.3116 and the USD GBP exchange rate was trending around 0.7624.

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