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GBP to USD Exchange Rate Plunges on Fresh Northern Ireland Border Issue Deadlock

February 28, 2018 - Written by James Fuller

While recent US data hasn’t been particularly inspiring, the British Pound to US Dollar (GBP/USD) exchange rate has fallen this week regardless due to Brexit uncertainty in Britain, while the US Dollar has been supported by market relief over the new Federal Reserve Chairman.

After slipping last week from 1.4027 to 1.3967, GBP/USD could be in for another week of losses if the pair remains weak in the coming days. On Wednesday, GBP/USD tumbled to near a low of 1.3811, its lowest level in almost three weeks.

GBP Plunges as Irish Border Uncertainty Returns to Headlines


The Pound failed to hold its ground against a strengthening US Dollar on Wednesday, as Brexit uncertainties worsened once again and left the British currency unappealing.

The EU published a legal draft of its Brexit withdrawal agreement on Wednesday, but the UK government has already rejected parts of the draft. This has complicated the clarity of Brexit negotiations and has worsened market uncertainty once again.

On the issue of the border between Ireland and Northern Ireland, the EU proposed a common regulatory area if no other solutions can be found.

UK Prime Minister Theresa May stated that ‘no UK Prime Minister could ever agree’ to such a proposal though, with the UK government ultimately concerned that Northern Ireland would become cut off from the rest of the UK.

On top of the latest disagreement between the UK and EU, Sterling was also weakened on Wednesday by the latest comments from EU chief negotiator Michel Barnier.

Amid the disagreement, Barnier reminded the UK that a post-Brexit transition period was still not a done deal. He said that for transition talks to be successful, withdrawal talks must first accelerate.
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Brexit uncertainty could remain high until a speech from PM May on Friday, but even this may not give the Pound much bullishness. Jordan Rochester from Nomura International Plc stated;

‘It’s hard to talk about the positives at this stage for the Pound,

It is unclear if Theresa May has the political capital to concede to the EU’s demand of European Court of Justice oversight and citizens rights’ during the transition, so a lot does hinge on what direction she decides to take in Friday’s speech.’


USD Continues Climb Following Powell Testimony


After new Federal Reserve Chairman Jerome Powell’s first Congressional Testimony on Tuesday, the US Dollar saw a surge in demand as investors became more confident in monetary policy consistency.

Powell successfully delivered a cautiously optimistic tone very similar to the kind of tone his predecessor, Janet Yellen, may have taken. As markets are now expecting policy consistency to continue, the US Dollar recovery rally has continued in relief.

Powell’s comments also caused speculation that the Federal Reserve could even hike US interest rates four times in 2018 as opposed to the currently expected three.

According to Neil Birrell from Premier Asset Management;

‘We need to get used to a period of forensic analysis of the data and words being used around the announcements and short term market reactions. All eyes are on the next Fed meeting in three weeks’ time,’


Wednesday saw the publication of the second US Gross Domestic Product (GDP) projections from Q4 2017. However, the quarterly figure simply slowed from 3.2% to 2.5% as expected and ultimately had no notable effect on US Dollar trade.

GBP/USD Forecast: More Major US Data Due on Thursday


As recent US data has either been unsurprising or low influence, investors have been focusing more on Federal Reserve news than data regardless.

Thursday’s US data could still influence US Dollar trade however, as it could affect the Federal Reserve outlook if it surprises.

Among Thursday’s US ecostats will be January’s Public Consumption Expenditure (PCE) results.

As PCE is one of the Federal Reserve’s preferred measures of US inflation, it could weaken Fed interest rate hike bets and the US Dollar itself if it comes in below expectations.

Other influential data due on Thursday includes manufacturing PMIs. Britain’s manufacturing PMI from Markit will be published in the morning, followed by ISM’s key US manufacturing PMI in the afternoon.
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