No Deal Brexit now less likely
The GBP/USD exchange rate has today breached 1.30, a key resistance point for the pair. The two month high has been caused by investor confidence slipping in the US Dollar due to the government shutdown and also a drop in the probability of a no deal Brexit scenario.
Donald Trump has now had the partial government shutdown in place for a considerable time, in fact it is the longest partial government shutdown in history. He is playing hard ball in an attempt to gain funding for the border wall.
The shutdown has put 800,000 government employees temporarily out of work and this will no doubt soon have an impact on economic data which has halted the considerable gains made by the greenback in 2018. With the GBP/USD exchange rate currently sitting just above 1.30 it will be interesting to see if Sterling’s advance continues, I am personally not convinced.
Another catalyst for Sterling was that the chances of a no deal Brexit now seem to be less likely. Morgan Stanley believe there is now a less than 5% chance of a no deal Brexit.
This is not good news for Theresa May, as a no deal scenario is the only ammunition in Brexit negotiations with Brussels.
Brexit will continue to be a key factor for Sterling value and any firm news in talks will result in volatility. One of the most important questions is whether Brussels are willing to make any concessions. European Commission President, Jean Claude-Junker has stated on several occasions there will be no changes to the current deal.
Mrs May originally delayed the vote on her Brexit deal in December due to a lack of confidence in it being passed. Her plan was to go back to Brussels to renegotiate and was stonewalled. With a no deal scenario now seemingly less likely I am doubtful he will change his tune.
May has ruled out a second referendum although it may well be the most sensible option, which leaves Brexit in limbo. Despite many feeling that a second referendum would be undemocratic I believe the exact opposite, that it would be undemocratic not to have one. Many of the promises made are not going to be fulfilled and the deal on the table is well below par, in short Brexit was mis-sold.
If you have a USD requirement short term I would be looking to take advantage of current levels due to the fragility of the pound.
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