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‘Very Possible’ Brexit Deal Buoys Pound US Dollar (GBP/USD) Exchange Rate

October 15, 2019 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Rises as Brexit Deal ‘Still Possible’

The Pound Sterling US Dollar (GBP/USD) exchange rate jumped over 1%, and the pairing is currently trading at around $1.2745.

Tuesday saw the pairing held near the three and a half month high reached last week, as a fresh wave of Brexit optimism was sparked by comments from the European Union’s chief negotiator, Michel Barnier.

Sterling jumped as Barnier said that reaching a Brexit agreement was ‘still possible’ despite it being a ‘narrow path’.

He also noted that it was ‘time to turn good intentions into legal text’ as reports revealed that the EU have said in order to secure a deal by the deadline, a legal text is required by the end of today.

Speaking to Reuters, an anonymous EU official said:

‘We need to land this tonight.

‘The talks are ongoing we need to give them space to proceed. Detailed conversation are underway and a deal is still very possible.’

Added to this the Pound rallied after reports the European Union will call another emergency summit before the Halloween deadline if the UK misses this evening’s deadline.

However, BBC Brussels correspondent, Adam Fleming said that the widely held view was that the UK was unlikely to secure a deal to leave the bloc by 31 October.

US Dollar (USD) Falls as Fed Bullard Warns of Sharp Slowdown

The US Dollar gained for the second day in a row on Tuesday, as optimism over the US-China trade deal faded, pushing investors towards the safe-haven Dollar.

However, Brexit optimism buoyed the Pound meaning the ‘Greenback’ was unable to rise against the British currency.

Last week saw USD come under pressure at the end of last week after risk appetite increased on hopes for a breakthrough in US-China trade tensions after a ‘Phase 1’ trade deal between the two countries was announced.

Commenting on this, Stephen Gallo, BMO’s European Head of FX Strategy said:

‘After the recent flushout of Dollar long bets, currency investors have reassessed the short-term outlook and have come to the view that there is not going to be much of a movement on the trade issue.’

Meanwhile, earlier this morning the St Louis Federal Reserve Bank President James Bullard said the US economy could slow more sharply than expected thanks to global trade as well as other risks.

Speaking in London, Bullard said that the Fed ‘may choose to provide additional accommodation going forward, but decisions will be made on a meeting-by-meeting basis’.

While he did not mention the preliminary deal struck between Washington and Beijing last week, Bullard stressed that the uncertainty created by trade tensions could potentially last years.

Pound US Dollar Outlook: Will Brexit Optimism Continue to Buoy GBP?

Looking ahead, the Pound (GBP) is likely to continue rising against the US Dollar (USD) if the legal text needed to secure a Brexit deal is produced by the end of the day.

Sterling is likely to be hit with a further bout of Brexit optimism if the chance of the UK securing a Brexit deal before the 31 October deadline increases.

Meanwhile, the Dollar could slump further following the release of Wednesday's US retail sales data.

If September’s sales do not rise as high as expected, it is likely the Pound US Dollar (GBP/USD) exchange rate will continue to rise.

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