The outlook for GBP USD became decidedly worse on Friday as markets responded to news that a resolution for the Irish border issue might remain out of reach, potentially risking trade talks being even more delayed.
Irish Border Solution Labelled Unlikely, GBP USD Exchange Rates Tumble
A solution to the Irish border situation seems increasingly unlikely, according to the Committee for Exiting the EU – a group of influential MP’s who have been scrutinising the negotiation process.
The group published a report on Friday stating that it does not see how it will be possible to reconcile the conflicting positions, despite the government’s proposal of using technology as a solution like the pre-scanning of goods to reduce customs checks on the border.
Irish Foreign Minister Simon Coveney stated that it might be problematic to avoid various physical checks if standards for food safety, medical regulation and animal welfare were different on either side of the border.
He reiterated his fears to the press:
‘What the British government has been asking of the Irish government is to just trust us we’ll solve these issues with a broad bold trade agreement. But that may not be possible, we don’t know. We can’t be asked to leap into the dark by opening up phase two discussions in the hope that these issues might be resolved’.
This news hurt the outlook for the Pound, with markets now incredibly anxious that Brussels will not be content with what is being offered and that trade talks will have to be delayed until after the Christmas period.
US Tax Reform Encounters Hurdles, But US Dollar (USD) Exchange Rate Recovers
US President Donald Trump’s highly anticipated tax reform legislation encountered some turbulence on Thursday night after a congressional watchdog asserted that the bill would send the budget skyrocketing .
This left party members scrambling to rework the legislation, with voting delayed to resume once again on Friday.
11th hour hurdles were widely expected by markets, however, with the tumultuous nature of pushing hugely complex tax legislation through congress at speed always liable to cause hiccups.
The market response for the US Dollar was fairly minimal as a result, with markets still optimistic that the legislation will be passed – particularly now that several Republicans who were previously on the fence (like Senator John McCain) have come out in support of the bill.
Crunch Time Looms for Brexit, GBP USD Exchange Rate Volatility Likely
Next week is crunch time, as it were, for this phase of Brexit negotiations, with UK Prime Minister Theresa May due to meet with President of the European Commission Jean Claude Juncker on Monday the 4th of December to officially present the UK’s position on things like the Irish border and the Brexit divorce bill.
If sufficient progress has not been made on these elements of negotiations then it is unlikely that Brussels will give trade talks the green light – an eventuality that will send GBP USD tumbling.
The outcome will be officially revealed at the Brussels summit over the 14th and 15th of December.
Markets will also be watching tonight’s vote on US tax reform closely, with a successful vote liable to propel the US Dollar and a failure liable to propel GBP USD.
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