The pound to dollar exchange rate has slipped lower as events continue to unfold over Brexit ahead of the EU summit in Brussels today before Friday 12th April, the date at which Britain will leave the EU if an extension is not granted. Rates for GBP to USD have fallen to below 1.31 as the markets wait for a decision from this important emergency Brexit summit.
UK Prime Minster Theresa May met with her French counterpart Emanuel Macron yesterday to discuss the draft proposal that will allow Britain more time to reach a consensus in the British parliament. Today’s meeting in Brussels will focus on the reasoning behind any extension and the length of time required.
Parliament votes for Brexit extension
In parliament yesterday MP’s voted in favour of asking the EU for an extension until 30th June although it is widely expected that a year long extension on Brexit would be preferred by the EU. Expect considerable volatility depending on what is agreed with a statement from the EU and British Prime Minister both expected in the early hours of Thursday morning.
It is of course possible that the EU do not allow such an extension bearing in mind it requires a unanimous decision from the EU 27. Such an outcome would complicate matters further considering parliament has this week voted to rule out a No-deal option which has been written into law. In this unlikely outcome Britain could find itself in a position where it would have to revoke Article 50 and potentially then start the process all over again. With no clear path to Brexit the pound is likely to remain sensitive to Brexit developments with high volatility expected for GBP vs USD.
The US dollar meanwhile remains strong against the pound taking Brexit out of the equation. Despite a slowdown in the US which is expected to worsen the dollar retains its safe haven status amidst a perceived global slowdown. The US data has certainly slowed in recent months to the extent that the Fed is now pausing interest rate increases for the rest of this year.
The markets had been expecting a further two rate rises in 2019 but the Fed have changed tact due to weaker growth at home and overseas. A trade deal reached between the US and China would likely help the US economy and the dollar but trade talks are still ongoing. There was hope a deal would be reached at the end of this month and such a development would likely see a change in the dollars fortunes.
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