Pound to Dollar Rates: Crunch Time in Post-Brexit Trade Deal Talks

Pound to Dollar Rate Recovers Losses

To say post-Brexit talks are delicately balanced is an understatement, with tension and standoffs par for the course at this crunch stage. Take the constantly fluctuating headlines for example: one minute they indicate we’re heading for a deal, the next they suggest it’s in danger of being knocked off course – and yesterday was no different. The pound to dollar rate not only continued its steady march back into 1.34 territory; it hit its highest level this year – bumping its head on the 1.35 ceiling, before settling at mid-range. Having been rattled by no-deal Brexit rhetoric just a few hours earlier, the pair’s climb was fuelled by renewed optimism that the agreement could be finalised today.

As negotiators attempt to find ingenious solutions to key sticking points – namely fisheries and governance – that will placate both parties, Ireland’s foreign minister struck an upbeat tone yesterday: “There’s a good chance we can get a deal across the line in the next few days” adding “We are in the space of days not weeks”. The pound welcomed the comments after the latest UK Services PMI for November threatened to slow its advance.

Activity in Britain’s services sector fell below the 50 level that divides growth from contraction for the first time since June. However, the drop was smaller than anticipated, as the four-week lockdown in England had less impact on firms than measures earlier in the year – and businesses grow more optimistic about the economic outlook for 2021.

US Service Sector Slows to 6-Month Low

An out-of-favour dollar helped the pound vs dollar rate to forge ahead yesterday. Disappointing US ISM Services Purchasing Manager’s Index (PMI) data was responsible for sending investors elsewhere. Although business activity in the US service sector continued to expand in November, it did so at its slowest pace since February – the index dropped to 55.9 from 56.6 in October, falling just short of market expectations.

Looking Ahead

Another busy day in the US economic data calendar is dominated by Nonfarm Payrolls. The eagerly anticipated release is forecast to reveal a fall in the number of new jobs created during the previous month, in all non-agricultural business – potentially piling more pressure on the dollar. But all eyes will be on events in London.

It’s make-or-break time in the post-Brexit talks. The EU is adamant that a deal must be reached by Sunday or there may be no way to avoid massive trade disruptions on 1st January. The two sides will remain locked in intense talks in London over the weekend to try to come to a last-minute agreement – with the pound’s fortunes dependent on the outcome.

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