No-Deal Brexit Fears Persist
The pound to US dollar rate ended last week in buoyant mood, having climbed back above the 1.30 level. This was a welcome change in fortune after its post-election rally had been dealt a blow by the renewed threat of a no-deal Brexit. The UK government’s decision to make it illegal to request an extension to the Brexit transition period, cast a shadow over the UK’s future relationship with the EU. Boris Johnson has made it clear that he is prepared to walk away without a trade agreement at the end of 2020, presenting the bloc with a hard deadline and a potential cliff-edge scenario.
US-China Trade Tensions Ease
Thankfully for the pair, the pound strengthened on Friday, as risky assets gained across markets. This reflected growing investor confidence inspired by thawing trade tensions between the US and China, which gave the world economic outlook a boost. Over the Christmas period, President Trump said that he and Chinese President Xi Jinping would meet to sign the phase one deal. While the Chinese ambassador to the US stated that there is no problem with Beijing meeting its phase one commitments.
Parliament’s Christmas recess and an empty economic data calendar meant the renewed threat of a no-deal Brexit was the pound’s main concern last week. We still must wait until next year for the next influential release that might provide it with some support, when the Markit Manufacturing PMI hits the headlines on Thursday. The data comes thick and fast on Friday with a slew of reports, including Nationwide Housing Prices and Markit Construction PMI. Any sign of domestic economic health will provide the pound with some much-needed support, at a time when Brexit uncertainty has reared its ugly head once again. While Political developments are likely to remain muted until MPs return to work on 6th January.
It’s another busy five days in the US economic data calendar, despite the New Year’s Day bank holiday on Wednesday. The week kicks off with the Chicago Purchasing Managers’ Index and Pending Home Sales figures today, followed by the Housing Price Index and Consumer Confidence reading tomorrow.
The GBP vs USD rate will continue to be influenced by developments in the US-China trade war if officials from either side comment on the progress of the phase one negotiations.
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