Growing Fears of No-Deal Brexit Hampers Pound
Less than two weeks ago, the pound to US dollar rate was revelling in the Conservatives thumping election victory and ‘stonking mandate’ for Brexit. So much so that the pair edged over the 1.35 level for the first time since May 2018 in the immediate aftermath of the vote. But 11 days is a long time in the world of currency markets, and the post-election optimism has begun to evaporate. Growing anxiety around the possibility of a hard and chaotic Brexit in 2020 has caused the GBP vs USD rate to reverse its recent gains, falling below 1.30 yesterday and remaining there this morning. The UK’s withdrawal from the EU remains a driving force for the pound, with Mr Johnson continuing to use the threat of a no-deal Brexit as a bargaining tool in the upcoming trade talks.
US-China Trade War: Beijing Cuts Tariffs
The dollar was holding steady as the week dawned after Beijing announced that its lowering tariffs on more than 850 imports, making it cheaper for Chinese firms to buy products from abroad. According to China’s finance ministry, the sudden move aims to: “increase imports of products facing a relative domestic shortage, or foreign speciality goods for everyday consumption.” This has fuelled speculation that the US might follow suit, enabling both sides to agree on a phase one trade deal as soon as next month.
Yesterday’s ecostats were a mixed bag for the US economy: durable-goods orders for November sunk at their sharpest rate in six months; core capital goods orders barely rose and shipments fell; new-home sales increased to cap the sectors best three months since 2007; and, the Chicago Fed National Activity Index rose in November. The latter – widely considered the most significant of yesterday’s readings – indicated that the domestic economy rebounded last month; a jump in economic growth that was largely driven by production-related indicators.
The pound isn’t expected to be given too much more to think about this week. We must wait until Monday for the next appearance of UK economic data in the calendar. While political headlines are likely to be scarce during Parliament’s Christmas recess.
Thursday’s Initial Jobless Claims figures are the next economic release of note from the US. Trade developments will be closely monitored following yesterday’s announcement from Beijing.
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