Pound to dollar exchange rates has moved higher with good gains of over 1% seen yesterday for the GBP to USD pair taking rates above 1.30. The move higher comes ahead of an important meeting today between UK Prime Minister Theresa May and European Commission President Jean Claude Juncker. Optimism has been growing that there may be some sort of compromise or adjustment on the controversial Irish backstop, which has made the negotiations more difficult.
There are two parts to this. It is believed that there may be a codicil added alongside the withdrawal agreement which would effectively put some sort of a time limit on the backstop if it ever came into force or otherwise would allow Britain to leave unilaterally. It has also been reported that any changes could signal the intent from the EU and UK to come to a deal on trade, which would mean the backstop should never actually come into play. Today’s meeting should prove very influential for pound to dollar exchange rates and anything positive to suggest a deal is in sight could see GBP vs USD rates strengthen. It should pave the way for the next vote in the House of Commons next week which will be the ultimate test.
FOMC meeting minutes could offer clues on US interest rates
This evening at 19:00 the FOMC minutes will be released from the last meeting which may offer some clues as to where interest rates may be heading in the US. The economic picture from the US has on the whole been looking very positive with a particularly strong labour market and good growth. The question is whether the US Fed will seek to slow down those interest rate hikes and pause this year with the uncertainties over global trade and the ongoing trade war between the US and China.
Any progress in the trade talks could actually influence the Fed’s thinking and a deadline of 1st March draws closer, which is when the US will introduce another series of tariffs on Chinese imports. Whilst there is still a stalemate in these negotiations at present the outlook for future global trade remains very uncertain and the Fed in my view will be very interested to see the outcome of these talks. Any suggestion the Fed would look to pause on rate increases could see dollar weakness as investors move away from the US dollar.
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