Tuesday, December 11, 2018
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Pound US dollar exchange rate: GBP/USD in limbo as markets await BoE Brexit deal analysis | City & Business | Finance


The pound is holding in a narrow range against the US dollar and the majority of its other peers this morning as markets brace for the publication of the Bank of England’s (BoE) Financial Stability Review and Brexit analysis later this afternoon. The results of the stability test will inform GBP investors of how well the BoE believes the UK’s biggest banks would cope with an economic shock, or handle a recession. However the stress tests are likely to be overshadowed by the BoE’s accompanying assessment of Theresa May’s Brexit deal.

The report will outline how the current deal would compare to a no-deal scenario and is widely expected to conclude that exiting the EU without a deal would do significant damage to the UK economy. 

At the same time demand for the US dollar has slipped this morning as optimism grows that US-Chinese trade tensions may begin to ease following this week’s G20 summit of leaders.

This comes as it was revealed that US President Donald Trump is set to meet for a formal dinner with his Chinese counterpart Xi Jinping on the side-lines of the summit. 

However, in revealing the meeting, Larry Kudlow – director of the US National Economic Council – warned that any progress in talks would be reliant upon President Xi and his willingness to make concessions to the US.

Looking ahead, in the run-up to the BoE’s Brexit report, the GBP/USD exchange rate may come under pressure with the publication of the latest US GDP estimate.

The previous reading saw US economic growth slide from 4.2 per cent to 3.5 per cent in the third quarter, however we may see the US dollar strengthen today if growth is revised up in the second estimate.

Also likely to impact USD this evening will be a speech by Federal Reserve Chair Jerome Powell, with the greenback expected to strengthen if Mr Powell reaffirms the need for further interest rate hikes. 

Longer-term, the pound is likely to remain volatile over the next couple of weeks as the UK currency remains highly sensitive to comments from MPs regarding the government’s Brexit deal in the run-up to a Parliamentary vote on 11 December.



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