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Brexit Update: Pound to Dollar Exchange Rate Climbs as Barnier Admits ?Favourable Response? to Extending Article 50

January 17, 2019 - Written by John Cameron

UPDATE: Analysts at Scotiabank are betting on a decline in the pound-to-dollar exchange rate in the near-term:

"Cable remains range bound between support in the low/mid 1.28s and resistance in the 1.2925 area. Trend signals are mixed and suggestive or more range trading. We rather favour fading GBP gains to the 1.29 area while 1.2930 holds."

GBP/USD Exchange Rate Increases as May Instigates Cross-Party Talks

The Pound US Dollar (GBP/USD) exchange rate is up today and is currently trading around $1.2917 on the inter-bank market.

The Pound (GBP) gained on the US Dollar (USD) today after Prime Minister Theresa May emerged unscathed from last night’s no-confidence vote in the government – although winning by a meagre majority of just 19.

Today will see May engage in cross-party talks in an attempt to formulate a new Brexit deal, although Labour leader Jeremy Corbyn – who the initiated the no-confidence vote – has demanded that a no deal Brexit be removed from the table, which has caused the fraction between the two parties to widen.

Some Pound investors, however, have been encouraged by the increasing likelihood of an extension to Article 50, as Theresa May refuses to categorically rule it out, and the European Chief Brexit Negotiator, Michel Barnier, commenting that he would be willing to renegotiate the deal if May shifts her ‘red lines’.

Barnier stated:

‘The European Union will be immediately ready to go hand in hand with that development and to give a favourable response.’

USD/GBP Exchange Rate Falls as US Publishes Disappointing Jobless Figures

The US Dollar, meanwhile, failed to make any gains on Sterling today after the publication of the US continuing jobless claims figures for January increased above expectation to 1.737m.

These were, however, followed by some better than-expected figures from the Philadelphia Fed manufacturing survey, which showed an increase at 17.0 against the previous month’s 9.1, indicating positive growth in the manufacturing sector.

USD meanwhile, has been plagued by the on-going partial US government shutdown, with the divide between President Donald Trump and the House of Representatives – over funding for the Mexican border wall – causing many ‘Greenback’ investors to remain skittish.

Pound to US Dollar (GBP/USD) Exchange Rate Climbs as May Sticks to ‘Brexit Principles’

The Pound gained on the ‘Greenback’ today despite Wednesday’s UK inflation figures hitting a nearly two-year low following the publication of the CPI figures for December, which slipped to 2.1% against November’s 2.3%.

Today also saw May’s official spokesman comment that the PM had ruled out a second referendum and was sticking to her Brexit ‘principles’, further saying that she was approaching cross-party talks ‘in a constructive spirit, and wanting to hear what the various groups have to say.’

This has discouraged some Pound investors who had hoped a second referendum would see the UK remain in the EU.

GBP/USD Exchange Rate Outlook: Sterling Traders Await May’s Next Brexit Move

Pound investors will be looking ahead to tomorrow’s publication of the UK retail sales figures for December which are expected to decrease – potentially seeing Sterling lose some of its gains on the ‘Greenback’.

USD traders, meanwhile, will be looking ahead to tomorrow’s release of the US industrial production figures for December, with any signs of bullishness offering support for the struggling US Dollar.

With Theresa May’s next Brexit ‘move’ in the spotlight, and a looming deadline to present an alternative deal to the House of Commons by 21 January – next Monday – the GBP/USD exchange rate is likely to be driven by politics rather than data over the coming days.

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