It’s an extremely important week for UK Prime Minister Theresa May as she has 3 days to come up with a plan to take to the EU summit on Wednesday. Last week, the Prime Minister invited the leader of the opposition Jeremy Corbyn into discussions about the future direction of Brexit. Mr Corbyn has made it clear that he wants customs union access, therefore if both party leaders manage to come to an agreement it’s likely that the PM would have to give in to the demands of the opposition. The problem for the Prime Minister is that MPs within her cabinet have made it clear that resignations will follow if she goes down the route of a customs union.
There are three likely outcomes this week which would all have a different impact on the pound to US dollar exchange rate. Firstly, the PM and Jeremy Corbyn agree on a plan which involves the customs union. The EU are then likely to accept this and I expect the pound to increase in value against the US dollar. Secondly, Theresa May fails to agree a deal with Corbyn, however the EU offer a long extension. I expect if a long extension materalises resignations will follow and Theresa May’s position as Prime Minister will come under threat once more. Lastly, if the PM doesn’t manage to secure any kind of deal in the UK, the Europeans may force the PM into calling an early election. If this was to happen I expect the pound to come under pressure against the dollar.
In other news, data released in the US last week was a mixed bag. On one hand Non-Farm Payroll numbers exceeded expectation by 16k. However Average hourly earnings, ISM Non-Manufacturing PMI and durable goods orders all failed to impress. Furthermore, in recent weeks many forecasters have been predicting that the US will enter recession and the Federal Reserve Bank changed their interest rate hike forecasts from 2 to 0 for 2019. Last week’s numbers were a mixed bag so didn’t offer a clear direction in regards to the chances of a recession. Nevertheless I expect its going to be a tough year for the US dollar compared to last year. In regards to pound to us dollar exchange rates I expect the events in the UK will dictate the direction of the currency pair.
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