Risk of GBP/USD Exchange Rate Decline if EU Highlights Brexit Problems
The Pound (GBP) has fallen against the US Dollar (USD) today, sliding to an exchange rate of $1.3095 in the GBP/USD pairing.
This deterioration comes ahead of potentially greater losses today and tomorrow, when EU leaders meet to discuss key issues including Brexit.
Although the UK’s negotiations with the EU will not be the main focus of the discussions, they will still factor in and could bring some alarming updates.
Ahead of the meetings, Irish government officials have fired some warning shots; Tánaiste Simon Coveney has said:
‘Unfortunately, what we are hearing constantly out of Westminster is somewhat chaotic in terms of messaging and that needs to stop.
‘We cannot stop it; that is a matter for the British political system to resolve.’
The state of the Irish border after Brexit has yet to be resolved; for context, EU officials have warned that ‘Nothing is agreed until everything is agreed.’
Along with Mr Coveney, Irish Prime Minister Leo Varadkar has also pushed for the EU to give the UK a firm message:
‘I expect EU leaders to send a strong message to the UK that negotiations with the taskforce need to intensify.
‘The lack of progress in the negotiations on the Withdrawal Agreement has been very disappointing.’
If the UK’s lack of progress in Brexit talks is brought up at the EU summit, the Pound could fall further against the US Dollar because of trader worries.
Could US GDP Slowdown Cause USD/GBP Exchange Rate Losses?
More concretely than the upcoming EU meetings, there will be US GDP growth rate stats out this afternoon that could improve the GBP/USD exchange rate.
Finalised GDP stats for Q1 2018 are expected to confirm that economic growth slowed at the start of the year, on both the quarter-on-quarter and year-on-year readings.
Although neither result would put the US below 1.9% growth, the GDP data could still concern US Dollar (USD) traders and lead to a dip in value.
Assuming that Pound Sterling (GBP) hasn’t been weakened ahead of the news, a GBP/USD exchange rate rise might be possible this afternoon.
Will US Dollar to Pound (USD/GBP) Exchange Rate Rise on Income Data?
There will be additional high-impact US economic data out before the weekend, in the form of personal income and spending data on Friday afternoon.
Both of these data releases are considered high-impact, as they can affect when the Federal Reserve next decides to hike interest rates.
Personal incomes are tipped to have risen by 0.4% in May, but spending levels are conversely expected to slow with a move from 0.6% to 0.4%.
If both of the readings beat forecasts and show significant growth, then the US Dollar to Pound (USD/GBP) exchange rate could rise sharply.
Such results would increase the likelihood of a near-term interest rate hike; most economists expect two more in 2018.
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