USD GBP Exchange Rate Slides as UK Commits to Divorce Bill Sum

November 29, 2017 - Written by Frank Davies

STORY LINK USD GBP Exchange Rate Slides as UK Commits to Divorce Bill Sum

The US Dollar Pound Sterling (USD GBP) exchange rate slipped Wednesday morning as markets responded to news that the UK has offered a larger potential divorce sum that could be worth up to 55bn Euros.

Pound (GBP) Exchange Rates Climb on New Potential Divorce Bill Sum

Whilst reports claim that there has been no final agreement on the sum, the new offer that has been put forth by London has been given ‘broad agreement’ by Brussels, giving hope to dissolving the problematic negotiation impasse and restoring some demand to the Pound.

UK Prime Minister Theresa May has previously offered the EU 20bn Euros, however a lack of progression in negotiations and fears that trade will not be discussed as Brexit day 2019 draws closer has seemingly pressured London into raising the figure.

Both sides are now discussing the production of a joint paper that will formalise an agreement on the higher sum, something that could take until the end of the week before being published.

Beyond this, the EU leaders will decide if sufficient progress has been made to begin further negotiations in mid-December, a crunch summit that many are now hoping will finally move things forward in light of the new bill.

In other news, figures from the Bank of England (BoE) on Wednesday demonstrated that growth in lending to British consumers cooled to an 18-month low in October.

The BoE reported that net consumer credit increased by GBP 1.45 month-on-month, drastically missing the forecast of 1.50b but easing some concerns about the build-up of household debt.

Year-on-year consumer credit rose by 9.6%, down from the previous 9.8% rise.

Investors ultimately seemed unconcerned with the contraction, with market attention focused firmly on the latest with the Brexit divorce bill.

Trump Tax Gains Momentum, USD Exchange Rates Climb

The potential for successful US tax reform seemed to improve yesterday after the Budget Committee voted to pass the Republicans $1.5 trillion tax package, clearing the path for the Senate to vote on the bill before the week’s end.

The speedy turnaround underlines pressures on the Republican Party to secure a significant legislative victory in their first year controlling both the White House and Congress – especially after the failed reform of Obamacare.

‘I think we’re going to get it passed,’ US President Donald Trump stated later that day. ‘It’s going to have lots of adjustments before it ends, but the end result will be a very, very massive – the largest in the history of our country – tax cut’.

Combined with yesterday’s positive consumer confidence index reading this news quickly bolstered demand for the ‘Greenback’, with markets hopeful that the reduction in US corporate taxes will position the US as a more competitive economy on the world stage.

As of Wednesday, however, the news was not enough to prevent the Pound taking the lead, with markets becoming bearish before the release of the US GDP readings.

Volatility Ahead for USD GBP Exchange Rate on US GDP

The USD GBP exchange rate could become increasingly volatile in the afternoon depending on the result of today’s run of data prints.

Most pertinent amongst these will be the US gross domestic product (GDP) reading, which is currently forecast to rise from 3.0% to 3.2%.

This news would demonstrate that the US economy remains on good form, seemingly strengthening the case for a third and final rate hike from the Federal Reserve in December.

Despite this eventuality the markets will likely remain anxious about inflation in the US being limp, especially with Fed Chairman Janet Yellen recently expressing a similar sentiment.

For the Pound, markets will be keen to see if a joint-paper is successfully agreed upon and published before the week’s end, with any news that progress has been made liable to send the Pound soaring.

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TAGS: Dollar Pound Forecasts