Brexit Negotiations Continue – What can we expect for the GBP/USD Exchange Rate?
The Pound US Dollar (GBP/USD) exchange rate could encounter some volatility next week as markets respond to progress, or a lack thereof, in Brexit negotiations.
UK Prime Minister Theresa May and a number of senior Ministers thrashed out the UK’s approach to Brexit last week, with reports claiming that the attendees were happy that some progress had been made, even if it consisted of ‘baby steps forwards’.
Another Cabinet source also claimed that ‘divergence has won the day’, with mutual recognition amongst members that the UK would not remain within the customs union, instead attaining frictionless trade through another means.
Beyond this not a great deal was revealed, instead, markets will have to wait until next week when the PM will set out the position in a speech, after a discussion by the full cabinet.
If the speech reveals that progress has been made then it could drive the Bank of England (BoE) closer towards hawkish monetary policy measures, with the Monetary Policy Committee (MPC) previously asserting that a sooner-than-expected rate hike would largely be dependent on progress being made on the transitionary front.
US Growth Figures Loom – GBP/USD Exchange Rate Volatility Expected
The primary driver for US Dollar (USD) exchange rates next week will be Wednesday’s Q4 2017 GDP print, with markets set to assess the figure in an attempt to ascertain if the US Fed will move for a rate hike in March.
Markets currently expect GDP to print at 2.4%, consistent with the previous reading – with an annualised reading of 2.6%.
A result above this, however would illustrate that the US economy is accelerating faster than expected, an event that already seems to be reflected in the upbeat wage growth readings, the rising level of inflation and the record low unemployment rate.
It should also be pointed out, however, that some Fed Presidents are wary of the prospect of too many rate hikes, in too short of a time.
St Louis Fed President James Bullard is one such person, telling press last week that the Fed needs to make sure that it follows the economy closely and be wary of future price pressures on the horizon.
Bullard said:
‘One thing I’m concerned about is if there’s a bunch of hikes this year Fed policy will turn restrictive. (…) The idea that we need to go 100 basis points in 2018, that seems like a lot to me. Everything would have to go just right. The economy would have to surprise on the upside a bunch of times during the year’.
A below forecast reading, however, could give Sterling even more room to climb.
GBP/USD Exchange Rate Forecast: UK Private Sector Performance in the Spotlight
The Pound US Dollar (GBP/USD) exchange rate could see some movement next week on the back of a variety of pertinent ecostats from the UK.
Tuesday will feature the UK’s Nationwide house price readings and the GfK consumer confidence print, whilst Thursday will feature the UK’s net consumer credit figures and the Markit manufacturing PMI, and finally; Friday will feature the UK’s construction PMI.
Whilst these figures will most likely play second-fiddle to Brexit-related soundbites, markets will be keen to assess the performance of the UK’s private sector, with growth in construction and manufacturing liable to give Sterling a shot in the arm.
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