Pound to dollar exchange rates should be set for a volatile fortnight as Brexit now moves into the final stages after Parliament has returned from the Christmas recess.
The meaningful vote which was supposed to take place before Christmas is now scheduled to be held 15th January. The withdrawal agreement and Brexit deal will be debated in the House of Commons this week leaving a short but very uncertain period for the pound before new direction is provided whichever way the vote goes.
Irish backstop still a concern for MPs
It has been reported that the Government are seeking guidance from the European Court of Justice as to the “temporary” Northern Ireland backstop which has been one of the most controversial issues to contend with. If it can be agreed in legal terms that the backstop will not be indefinite then the deal that the Prime Minister has agreed may stand a chance of getting through Parliament. This in my view could see a substantial rally in GBP to USD rates but of course if agreement is not reached then the pound may fall materially lower. Any announcements this week that the backstop is time limited ahead of the vote will in my view be a very major boost for the pound.
On the Andrew Marr show on Sunday the Prime Minister made clear the UK would be in uncharted territory if a deal is not reached and it is this prospect which is keeping pressure on the pound to dollar exchange rate for the time being.
US Dollar benefits from Non-Farm Payroll numbers
The dollar has been given a major boost after US Non-Farm Payroll numbers on Friday came in much stronger than expected which improves the outlook for the US economy. What this means is that the US Federal Reserve Chairman Jerome Powell will now likely stick with the Fed’s previous guidance that interest rates will continue to rise throughout 2019. There had been some concerns that the economy was beginning to slow down but the strong jobs data suggest otherwise.
Further interest rate hikes should now be set to continue this year with another two or three expected in 2019. The US economy is set for an uncertain period ahead though and the risks to the economy stemming from the trade wars should not be underestimated. Whilst the US economy continues to perform strongly for the time being though it does help President Trump in the next elections.
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