What a difference a day can make in the dynamic world of exchange rates. On Tuesday, the pound to dollar rate was busy climbing above the 1.34 level for the first time in three months on the back of optimistic post-Brexit headlines. However, yesterday the pair was forced to make a rapid descent, briefly dipping below 1.33, after the EU’s chief Brexit negotiator, Michel Barnier told EU ambassadors in Brussels that “a deal hangs in the balance”.
Mr Barnier sought to reassure his audience that he intends to protect the bloc’s interests, as post-Brexit trade talks enter the so-called “tunnel” stage or final stretch – and creative compromises are explored to get a Brexit deal across the line this week. He also warned that the next 36 hours would be critical, before outlining the key sticking points: “level playing field” conditions for business, fishing rights and how a trade deal could be implemented. The briefing was hastily arranged after European governments expressed concerns that European Commission president Ursula von der Leyen could be tempted to compromise too much to secure a deal. President Emmanuel Macron said that he’s closely monitoring the negotiations and won’t agree to anything that compromises France’s long-term interests – yet more no-deal rhetoric that troubled the pound.
This morning the pair had crept above 1.34 once again after news broke in the middle of the night that the UK has given ground on fishing quotas – and could be willing to accept 60% of value of stocks from UK seas, down from 80%. The comments from Mr Barnier raised hopes that a deal is imminent as we approach a make or break moment in the talks – causing the pound to strengthen.
Dollar Remains in the Doldrums
The dollar was contending with its own challenges yesterday, meaning the post-Brexit merry-go-round remained the driving force behind the pound vs dollar rate. A warning from Federal Reserve chairman, Jerome Powell that the nation’s economic outlook is “extremely uncertain” weighed on dollar sentiment. As did comments from president-elect Joe Biden, who said he would not move to immediately roll-back trade tariffs placed on China by his predecessor. This was compounded by a disappointing ADP Employment Change report, which revealed that the private sector recorded a reduction in jobs – despite being forecast to show a modest increase.
Today sees the release of the Markit Services PMI from the UK, which is forecast to hold steady. Over in the US, we are due a steady stream of influential economic releases throughout the day. The ISM Services PMI is the pick of the bunch, with business conditions in the US non-manufacturing sector forecast to deteriorate slightly – which could put further pressure on the dollar.
Speculation is rife that EU states are putting pressure on Mr Barnier to give them sight of any deal with the UK before it is signed, allowing them to scrutinise it before giving it the all-clear. This comes amid concerns the bloc’s chief negotiator may concede too much ground as the trade talks finish line looms.
You can get in touch with us to discuss your upcoming US dollar exchange, and the impact of the above factors by using the form below. I’ll be happy to respond personally and discuss your requirements.