The Pound has made a small advance against the US Dollar recently, but faces difficulties ahead depending on future UK immigration policies.
GBP USD Outlook: Leaked Home Office Document could Spell Trouble for UK Economy
A paper leaked from the Home Office could end up damaging both the UK economy and the Pound in the future, if the plans detailed are put into action.
The document reveals that the government is planning to limit the flow of EU workers into the UK after Brexit, via both tighter border controls as well as penalties for companies recruiting EU workers over UK applicants.
While the scheme is designed to raise employment in the British work force, the plans have been denounced by a wide range of UK businesses and trade bodies. As well as the National Farmers Union (NFU) warning that this could disrupt the whole UK food supply chain, British Hospitality Association Chief Executive Ufi Ibrahim has cautioned;
‘If these proposals are implemented it could be catastrophic for the UK hospitality industry’.
In the long-term, the actual implementation of these plans could cause heavy Pound losses due to a sharp drop in economic confidence. More immediately, if it looks like EU Brexit negotiators are displeased by the document then Sterling could also slip on assumptions of a worse Brexit deal being handed out.
US Dollar may Slide if DACA ‘Wind Down’ Goes Ahead
In a similar situation to the UK, the US Dollar could also be negatively affected by recent plans to remove foreign workers or otherwise impede their activities within the US.
This stems from Donald Trump’s decision to end the Deferred Action for Childhood Arrivals (DACA) act, the beneficiaries of which are known as ‘Dreamers’.
In essence, the act allowed undocumented immigrants to the US who were classified as children to stay in the country without facing deportation. Although it offered Dreamers certain protections, the act notably did not provide a path to full citizenship.
Explaining his reasons for phasing out the act, Trump declared that;
‘We are going to put the interest of American citizens first! The forgotten men and women will no longer be forgotten’.
If DACA is being removed as Trump plans then this could create a significant vacuum in the US jobs market that wouldn’t necessarily be immediately filled by Trump’s ‘forgotten’ citizens.
The plan is for a scaled ‘winding down’ of the program, which may trigger a gradual draining of workers in sectors that are heavily populated with ‘Dreamers’. As with the removal of seasonal EU workers in the UK, this could present significant economic difficulties further down the road.
Assuming that the DACA shutdown does go ahead, the US could start to see progressively negative consequences that may steadily lower confidence in the US Dollar.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound to US Dollar (GBP USD) exchange rate was trading at 1.3054 and the US Dollar to Pound (USD GBP) exchange rate was trading at 0.7660.
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