GBP/USD – Unfortunately there is little reason to be optimistic about the Pound at present. The lack of clarity surrounding Brexit is the most significant cause of this.
The resignations of David Davis and Boris Johnson have not helped matters and Theresa May’s position is not looking stable. There is the possibility of a vote of no confidence. If this occurs expect further falls for Sterling.
There are also preparations being made for a “no deal” scenario which is a further cause for concern.
The key point of contention is access to the European Union. The preferred method of EU access for Brussels is equivalence. Equivalence will allow access to EU for a limited period of time, tabled at 30 days but this can be revoked at anytime.
This is hardly going to suit large financial institutions and could cause them to flood to Berlin or Paris. Financial services is the UK’s largest form of tax revenue and I believe France and Germany are desperate to get their hands on it.
May is trying to negotiate a more stable form of EU access, but this could well prove problematic.
The US is involved in trade wars on multiple fronts and usually this would cause the currency in question to weaken in value. Not in the case of the greenback however. In times of global economic uncertainty investors turn to safe haven currencies. The US Dollar is currently offering impressive returns through 10yr treasury bonds and there are set to be two further rate hikes from the Federal Reserve this year.
Trump has stated his concern at a strengthening Dollar, especially with two further hikes planned. The Fed is meant to act as a separate entity. Trump did however put significant pressure on previous Fed chair, Janet Yellen before her resignation.
Overall, things are not looking good for Sterling and there is little reason for optimism.
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