Pound v US dollar: GBP exchange rate FLAT amid Brexit Irish border agreement
A CAUTIOUS reaction from the currency market to news of an agreement on the Irish border after Brexit is keeping the pound stuck at opening levels versus the US dollar so far today.
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The GBP/USD exchange rate is trending around US$1.348 after overnight talks in Westminster resulted in new text for an agreement on trade regulations to avoid the need for a hard border between Northern Ireland and the Republic after Brexit.
A deal on the Irish border was one of the key sticking points that the EU demanded were resolved before negotiations on trade could begin.
A statement released by the European Council this morning said: “The European Commission has today recommended to the European Council (Article 50) to conclude that sufficient progress has been made in the first phase of the Article 50 negotiations with the United Kingdom.
“It is now for the European Council (Article 50) on 15 December 2017 to decide if sufficient progress has been made, allowing the negotiations to proceed to their second phase.”
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The pound made sharp gains against the US dollar yesterday as it emerged a border agreement was likely before the cut-off point on Sunday, but today Sterling remains on weak form.
While it has been recommended to the European Commission that it votes to approve the start of trade deals, this outcome remains without guarantee, no matter how likely.
The fact that the negotiations on phase one – the financial settlement, the rights of EU citizens in the UK and the Irish border – were supposed to be the easy part is also weighing on Sterling sentiment.
Largely positive domestic data has failed to boost appetite for GBP, despite above-forecast growth in manufacturing and industrial production, and smaller-than-expected trade deficits.
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Sufficient progress has been made in the first phase of the Article 50 negotiations
The US dollar is unable to particularly capitalise on the pound’s uncertainty thanks to the approach of key labour market data this afternoon.
November’s non-farm payrolls data could unsteady the enormous odds of monetary tightening from the Federal Reserve in the medium-term.
Markets expect a 90 per cent chance of an interest rate hike at next week’s Federal Open Market Committee (FOMC) meeting, but the longer-term outlook is less certain.
Should the NFP today show weakness in the labour market, the US dollar could face downside pressure as markets worry the Fed’s current tightening cycle is set to pause.
With next week’s rate hike essentially priced-in to the US dollar, it is the longer-term monetary policy outlook that could be affected by the NFP today and therefore cause turbulence for GBP/USD.
