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Pound Sterling US Dollar (GBP/USD) Exchange Rate Rises on Signs UK could Delay Departure from European Union

February 6, 2019 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Fluctuates on Signs UK to Delay Departure from EU

The Pound US Dollar (GBP/USD) exchange rate remained fairly buoyant over the morning into the start of the afternoon and is currently trading at an inter-bank rate of $1.2970.

This morning the Pound rallied against the US Dollar, likely on signs that the UK could push back the date of leaving the European Union from the 29th March to 24th May, which sparked hope this would reduce the chance of a chaotic no-deal Brexit.

This afternoon the US trade balance for November was released, with the figure a better-than-expected -$49.3B, although most of that came from falling imports.

British Prime Minister, Theresa May, has been in Northern Ireland’s Stormont, where she has been holding Brexit discussions.

While talks were going on, European Council President Donald Tusk sparked outrage when he tweeted:

‘I’ve been wondering what that special place in hell looks like, for those who promoted Brexit, without even a sketch of a plan how to carry it out safely.’

Nevertheless, Sinn Féin President Mary Lou McDonald stated that Tusk’s remarks about Brexit were ‘accurately reflecting the outrage’ of people in Northern Ireland.

Yesterday: US Dollar (USD) Buoyed as US Remains Main Driver of Global Expansion

Weak US services PMI data released for January showed growth had slowed to a lower-than-forecast 56.7 from 58.0, although the Pound US Dollar (GBP/USD) exchange rate did not see a significant rise because of it.

This is likely due to the JP Morgan Global Composite PMI finding that while the rate of global economic expansion eased to a two-and-a-half year low, data indicated that the US remained the ‘main driver of global economic expansion’.

The data revealed that the rate of new order growth matched December’s recent low, with activity expansion within the sector the softest in four months.

The GBP/USD pairing remained constrained, however, possibly as a result of a perk in business optimism, with Chief Business Economist at IHS Markit, Chris Williamson noting:

‘The robust economic growth signaled by the US PMI surveys at the start of the year sits in stark contrast to the near-stalling growth seen in Europe, China and Japan. At current levels, the surveys are consistent with annualised GDP growth of around 2.5% at the start of the year.

‘Jobs growth remained buoyant as business optimism perked up to its highest since October. Backlogs of work are meanwhile building up, in part because firms struggled to meet demand, which has in turn allowed sellers to continue to push prices higher.’

Yesterday: Pound (GBP) Falls as UK Economic Growth Weakest in Six Years

Yesterday saw the release of the UK’s services PMI, which showed that new orders had declined for the first time in two-and-a-half years, with business activity within the sector stagnating to 50.1.

This saw the Pound US Dollar (GBP/USD) exchange rate plummet, as the ‘Greenback’ was able to take advantage of the weakness in Sterling.

Chris Williamson, Chief Business Economist at IHS Markit highlighted the risk to the British economy, stating:

‘The latest PMI survey results indicate that the UK economy is at risk of stalling or worse as escalating Brexit uncertainty coincides with a wider slower slowdown in the global economy.

‘[…] The last three months have seen the economy slip into its weakest growth spell for six years, and indicate that GDP likely stagnated at the start of 2019 after eking out modest growth of just 0.1% in the fourth quarter.

‘[…] Service sector employment fell for the first time in the past six years in a sign that the slowdown is feeding through to the labour market.’

GBP/USD Outlook: Will a Steady UK Interest Rate Buoy Sterling?

With the lack of UK economic data releases today, Brexit is likely to remain one of the main catalysts for movement in the Pound.

With the British Prime Minister in Stormont holding Brexit talks with Northern Ireland’s five main political parties over the course of Wednesday and Thursday, this could see the Pound US Dollar (GBP/USD) exchange rate slide if there are signs that she is unable to make progress.

Thursday will also see the Bank of England (BoE) reveal their latest interest rate decision, which is predicted to hold steady at 0.75%.

This could see the pairing rise as sentiment for Sterling increases, although dovish comments from the BoE may see the Pound to slip again.

US initial jobless claims for February are due to be released tomorrow, which may cause the Pound US Dollar (GBP/USD) exchange rate to slip as the figure is forecast to only see an increase of 227K people filing first time claims compared to the previous 253K.

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