October 25, 2019 - Written by John Cameron
STORY LINK PM’s Call for Early General Election Leaves Pound US Dollar (GBP/USD) Exchange Rate Flat
Pound US Dollar (GBP/USD) Exchange Rate Muted as PM Awaits EU’s Brexit Delay Decision
The Pound US Dollar (GBP/USD) exchange rate was left muted today, and the pairing is currently trading at around $1.2837.
Sterling was left under pressure as Prime Minister Boris Johnson awaited the European Union’s decision on whether or not the UK will be granted a Brexit delay, which is now expected next week.
EU ambassadors are set to meet to discuss the length of the delay they will offer the UK, with many of the EU27 in favour of a three-month delay with the option to leave earlier if a deal is passed through parliament.
However, French President Emmanuel Macron has argued a shorter extension of no more than 15 days beyond the current deadline is more appropriate.
Meanwhile, MPs are to consider the Prime Minister’s call for an early general election, as the government stated if the EU offers a delay to January it would bring forward a Commons vote on an early election.
Boris Johnson’s call for an early election has sparked a fresh upswing in Brexit uncertainty, although without support from opposition parties a general election is unlikely.
Commenting on this, head of G10 FX strategy at Citigroup Global Markets Japan, Osamu Takashima said:
‘We’re constructive on sterling in the mid-term, because we don’t see a high chance for a general election.
‘My personal concern is once political uncertainty lifts, people will focus more on the UK’s economy, which is weakening. This could be a negative for Sterling.’
US Dollar (USD) Left Flat as Pence Blasts Beijing for Restricting Hong Kong’s ‘Rights and Liberties’
On Thursday, US Vice President Mike Pence blasted Nike and the National Basketball Association for falling in line with China over free speech arguments.
Added to this, he hit back at Beijing for restricting ‘rights and liberties’ in Hong Kong just ahead of talks between the US and China that attempt to ease trade tensions.
Criticizing China’s ‘surveillance state’ Pence stated:
‘Hong Kong is a living example of what can happen when China embraces liberty. And yet, for the last few years, Beijing has increased its interventions in Hong Kong and engaged in actions that curtail the rights and liberties that Hong Kong’s people were guaranteed through a binding international agreement.
‘We stand with you [Hong Kong], we are inspired by you. We urge you to stay on the path of non-violent protest.’
Analysts have argued the speech appeared to convince Donald Trump’s base that Pence was tough on Beijing going into the 2020 election, but was also aimed at keeping a path for a trade deal open.
Pence argued that the US was ‘not seeking to contain China’s development’ and the country wants ‘a constructive relationship with China’s leaders’.
Commenting on the speech, Robert Daly of the Kissinger Institute on China said:
‘In contrast to the Hudson Institute speech of October 2018, the Vice President’s equally hard-hitting Wilson speech offered the beginnings of a positive vision for US-China relations.’
US Dollar (USD) Left Flat as US Employment Slides at Fastest Pace in Close to a Decade
On Thursday, data revealed that October saw a modest rate of business activity growth in the US.
Markit showed in its flash US PMI composite that the index saw its sharpest increase in business activity since July, rising to 51.2.
However, the Dollar remained rangebound against Sterling as data showed employment numbers slumped for the second month, and by the steepest rate since December 2009.
Commenting on this, Markit Chief Business Economist, Chris Williamson said:
‘An increased rate of job culling adds to the gloomy picture, with jobs being lost among surveyed companies at a rate not seen since 2009. At current levels, the survey’s employment gauge indicates non-farm payroll growth slipping below 100,000.
‘The overall subdued picture reflects a spreading of economic weakness from manufacturing to services, but encouragingly we are now seeing some signs of manufacturing pulling out of its downturn, in part driven by a return to growth for exports and improved sentiment about the year ahead, linked to hopes that trade war tensions are starting to ease.
‘If manufacturing can continue to gain momentum this should hopefully feed through to stronger jobs growth and an improved service sector performance, leading to better GDP growth, but it remains too early to determine whether the economy has truly turned a corner.’
Pound US Dollar Outlook: Will USD Slide as the Fed Slashes Rates for the Third Time?
Looking ahead to next week, the US Dollar is likely to be left under pressure as the main focus is likely to shift to the US Federal Reserve interest rate decision.
While the Fed is expected to slash rates for the third time this year, the ‘Greenback’ is likely to slide if the tone of the bank is overly dovish.
Meanwhile, Sterling is likely to be left under pressure as the UK awaits the decision of the EU which is now expected next week.
If the government continue to push for an early general election is will likely leave the Pound under pressure as Brexit uncertainty rises, which could leave the Pound US Dollar (GBP/USD) exchange rate muted next week.
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TAGS: Pound Dollar Forecasts