The pound to dollar exchange rate is set for a volatile few months as we start 2019, with the final Brexit withdrawal date approaching. There is a growing chance that a no deal scenario could emerge which is one of the reasons the pound is trading at these lower levels. Rates for GBP vs USD are sitting at 1.27 for the pair.
There are some important dates approaching in January and any political developments over Brexit will inevitably be the main driver for sterling exchange rates. MPs return for the Christmas recess on the 7th of January ahead of an important vote in the House of Commons on the Brexit deal that Theresa May has agreed. If she is able to find support for her deal then this would likely prove positive for the pound but in practice it will be a difficult vote to win.
Irish backstop still a key barrier to Brexit agreement
The Democratic Unionist Party (DUP) have it made clear that they will not support the deal unless the Irish backstop is removed in its entirety. Due to the nature of this hung Parliament Theresa May will be seeking cross party support to find votes and with so many Conservative MPs also unhappy with the deal it seems less than likely to go through. This is likely to keep the sterling exchange rates under considerable pressure in these coming weeks with such an uncertain outcome over Brexit.
UK Purchasing Managers Index (PMI) data for the manufacturing sector is released this morning which could create some volatility for the pound although Brexit will more than likely keep any gains for GBP to USD muted.
The US dollar could find itself in a weaker position in 2019 with confidence in the US economy starting to wane. Although the US Fed raised interest rates at the December meeting last month, Fed Chairman Jerome Powell has signalled that the pace of rate hikes may need to slow down. There has also been a strong suggestion that the guidance offered by the Fed will lessen this year which will try to keep the markets guessing on monetary policy. This is how the Fed operated back before the financial crisis of 2008 and there could be bigger market reactions to US economic data should the Fed adopt this policy once again.
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