Pound US Dollar (GBP/USD) Exchange Rate Sinks as Boris Johnson Seeks to Cap Brexit Transition Period

December 17, 2019 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Sinks as Boris Johnson Seeks to Cap Brexit Transition Period

GBP/USD Exchange Rate Falls, No-Deal Brexit Fears Return

The Pound US Dollar (GBP/USD) exchange rate fell by -0.8% today, with the pairing currently trading around $1.316 following news that Prime Minister Boris Johnson would attempt to put into law a prohibition to any extension to the Brexit transition period beyond December 2020.

Sterling plummeted as markets reacted negatively to the possibility of further Brexit uncertainty, with the now rising possibility of a no-deal cliff-edge as the Conservatives are perceived to have limited to UK’s options.

Simon Coveney, Ireland’s Deputy Prime Minister, commented:

‘The EU hasn’t missed a deadline yet. It has been the UK that has missed deadlines in the past. I just think if we’ve learned anything from the first round of Brexit negotiations… [it] is that we shouldn’t be closing off options.’

In UK economic news, today saw the unemployment rate for October fell to a 44-year low. However, this was not enough to hold back GBP investors’ increasing concern over the possibility of a no-deal Brexit.

USD/GBP Exchange Rate Edges Higher as US Industrial Production Beats Forecasts

The US Dollar (USD) rose against the Pound today after the US Building Permits figure for November beat forecasts and rose from 1.461 million to 1.482 million, its highest level since 2007.

November’s US Industrial Production for November also rose above expectations from -0.9% to 1.1%.

Analysts at Wells Fargo commented:

‘The factory sector is not out of the woods, but a step toward détente in the trade war last week and signs of bottoming in other areas—like the November rise in the ISM production component to a less-bad 49.1—suggest hope for improvement.’

However, some of the ‘Greenback’s gains against the Pound have been compromised over growing hopes of a US-China ‘phase one’ trade deal, with investors seeking out riskier assets instead, as the US Dollar’s safe-haven appeal diminishes.

This follows comments from US President Donald Trump, who said that a deal between the two superpowers was nearing the finishing line, save for a translation of China’s deal.

GBP/USD Outlook: Brexit Developments in Focus

Pound investors will be looking ahead to tomorrow’s publication of the UK Consumer Price Index for November, which is expected to ease from 1.5% to 1.4%.

Tomorrow will also see the release of the UK Retail Price Index for November, with any signs of improvement likely providing some uplift for the Pound as the UK’s economy shows some signs of repair.

Brexit developments, however, will continue to drive the GBP/USD exchange rate this week, with any signs of UK-EU relations coming under strain over Boris Johnson’s proposed attempt to cap the transition period likely to prove Pound-negative.

Meanwhile, USD traders will be keeping a close eye on US-China trade developments, with any signs of a trade deal being inked before Christmas likely weakening the safe-haven ‘Greenback’ as traders flock to riskier assets.

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