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GBP/USD Exchange Rate Extends Lead on Renewed Post-Brexit UK Trade Optimism

January 25, 2018 - Written by Tim Boyer

Post-Brexit UK-US Trade Optimism Drives Pound (GBP) Exchange Rates Higher

The Pound US Dollar (GBP/USD) exchange rate extended its lead on Thursday as markets responded to growing optimism for the possibility of a post-Brexit UK-US trade deal.

US Treasury Secretary Steven Mnuchin spoke at the World Economic Forum in Davos, Switzerland, espousing the possibility of a post-Brexit trade deal between the US and the UK and asserting that the UK will be ‘at the front line’ for negotiations.
Mnuchin stated:

‘We are monitoring discussions with the European Union and we want to see a successful transition. There will be certain restrictions to deal with, but as soon as the UK is ready, then we would be prepared to negotiate an attractive trade deal’.

These comments followed a string of other optimistic shifts in outlook, with former UK Treasury Minister and Economist Lord Jim O’Neil asserting that the negative repercussions of Brexit will be ‘dwarfed’ by positive developments in the global economy, UK Brexit Secretary David Davis asserting that he does not expect leaving the customs union to have a negative impact on the UK economy and former Prime Minister David Cameron remarking that the EU referendum result is turning out ‘less badly than we all thought’.

Beyond all of this, US President Donald Trump has reaffirmed that he predicts a ‘tremendous increase’ in UK-US trade.

These perspectives helped support market demand for the Pound, though the overarching optimism continues to be renewed confidence that a two-year transitionary period will be achieved.

Markets Grow Anxious at Prospect of US Trade War, USD Exchange Rates Tumble

The US Dollar remained in the dumps on Thursday, limited by growing concerns that the implementation of US tariffs on certain goods will provoke a trade war.

In an effort to protect and bolster US companies the White House has implemented trade tariffs on foreign washing machines and solar panels; a measure that has already seen shares in the American firm Whirlpool soar.

‘By enforcing our existing trade laws, President Trump has ensured American workers will compete on a level playing field with their foreign counterparts’, stated Jeff Fettig, Whirlpool Chairman.

Investors remained unconvinced, however, apprehensive that the US will continue further down this path and potentially endanger trade prospects with key partners.

GBP/USD Exchange Rate Forecast: Volatility Ahead on US, UK GDP Figures

The Pound US Dollar (GBP/USD) exchange rate could become increasingly volatile on Friday as markets respond to two significant data releases; the gross domestic product (GDP) readings for the UK and the US.

Markets currently predict that the UK’s year-on-year Q4 GDP will slide from 1.7% previous to 1.4%, with the quarter-on-quarter reading expected to remain steady at 0.4%.

Across the pond, markets are also expecting the US GDP figure to fall, with the annualised quarter-on-quarter reading forecast to slide from 3.2% previous, to 3.0%.

Whilst the UK economy has proven resilient, markets are slightly apprehensive after the International Monetary Fund (IMF) downgraded the UK’s growth forecast for this year and the next.

A fall below 3% in US GDP, on the other hand, would still present the longest and strongest run of quarterly US GDP readings in over a decade.

In this respect the US Dollar could prove the more resilient currency in the face of this data, though it is unlikely that it will be enough to shift GBP/USD back into the ‘Gre
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