The pound to dollar rate dropped by more than 1 per cent on Monday, slipping below the 1.33 level in the process – and putting the pair on course for its worst day in three months. Hopes for progress towards a UK-EU trade deal over the weekend were dashed as Brexit talks remained deadlocked. Terms like “hanging in the balance” and on a “knife-edge” were again rolled out by officials to describe the current state of negotiations.
The pound had firmed towards the end of last week, reflecting dollar weakness and investor hopes that a deal was on the cards. However, tense discussions over the weekend revealed that the impasse over the so-called “level playing field” and fishing disputes remain major stumbling blocks – causing the UK currency to recoil. Both sides went on the defensive yesterday, with the EU’s chief negotiator, Michel Barnier warning that he could not “guarantee” there would be a deal and Boris Johnson stating that: “We’re not going to give in to EU demands preventing us taking back control of the rules Britons live under. It’s that simple”. Downbeat rhetoric helped undo the pound’s strength against the dollar over the past week.
News that Mr Johnson will travel to Brussels to hold in-person talks with European Commission President, Ursula von der Leyen “in the coming days” helped the pound to dollar rate rebound slightly overnight. The announcement was made following a 90-minute phone call between the two leaders, which failed to produce any headway. “Significant differences” remain, meaning the pivotal meeting is widely considered a last-ditch effort to salvage a deal.
Dollar Begins Week on the Back Foot
The dollar was still suffering a hangover from Friday’s disappointing jobs data, which showed nonfarm payrolls increased by 245,000 last month – the smallest gain since May and a sign the jobs recovery is slowing. Looking further ahead, speculation that the Federal Reserve will loosen fiscal and monetary policies later this month is providing support for risk assets. The resulting dollar weakness gave the pound vs dollar rate some mild respite, as it struggled under the weight of post-Brexit no-deal headlines.
The pound must wait until Thursday for some data that might make a difference when a raft of releases hit the headlines: Manufacturing Production, Industrial Production, and Gross Domestic Product. A busier day in the US economic calendar today sees the release of Unit Labor Costs and Nonfarm Productivity – which is forecast to provide a positive reading for the dollar.
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