Pound Sterling Exchange Rate Gains Reversed as Davis Comments Threaten to Derail Brexit Negotiations Again

GBP/EUR Exchange Rate – Pound Soft after Hopes of Brexit Progress Quickly Scuppered by Davis Comments

A large spike for the Pound against the Euro at the end of last week quickly disappeared after the weekend, leaving the GBP/EUR exchange rate no better off than it was a fortnight ago.

The boost to the Pound had come as the UK finally made progress in the first phase of Brexit negotiations.

Downing Street was able to provide satisfactory assurances regarding plans for the Irish border after Brexit, as well as offering an amount for the divorce bill that the EU found acceptable – somewhere in the region of £35 billion.

This saw officials state that the UK had made sufficient progress and recommend that the European Council votes this week to move negotiations on to the issue of trade.

However, any confidence in the Pound that this generated has been dashed this week after Brexit Secretary David Davis claimed on Sunday that the agreement struck was more a statement of intent than something legally enforceable.

This has infuriated EU officials and led to them demanding that any agreements be enshrined in legislation before further progress can be made.

Pound Sterling Live Headlines

GBP exchange rates slump on ill-judged comments from Brexit Secretary.

EUR rates see lacklustre movement as US and ECB policy decisions draw near.

USD exchange rates edge higher on strengthening outlook for long-term US economy.

Markets believe FOMC will definitely hike interest rates tonight.

GBP/USD Exchange Rate – Surprise Uptick in UK Inflation Pushes Pound Lower

The Pound has also been on largely lacklustre form versus the US Dollar, with GBP/USD currently down nearly a cent on last week’s opening levels.

Markets were perturbed yesterday by a surprise rise in UK inflation during November, with the overall rate of price growth climbing to 3.1% instead of holding steady at 3% in line with economists’ expectations.

The likelihood of the Bank of England (BoE) responding by tightening interest rates in the near-term is very small, leaving price growth to squeeze household budgets and potentially slow the consumer-driven economy.

The Monetary Policy Committee announces its latest decisions tomorrow, so any hints from policymakers that another interest rate hike may be necessary could help firm the Pound.

USD/GBP Exchange Rate – Approach of FOMC Policy Announcements Keeps Pressure on US Dollar

With the Federal Open Market Committee (FOMC) virtually guaranteed to hike interest rates at today’s monetary policy meeting, markets have had little reason to buy or sell USD over the past few days.

The US Dollar to Pound Sterling exchange rate has inched higher over the previous few days, with the focus now shifting past today’s expected round of tightening to the possibility of further hikes in 2018.

A strong non-farm payrolls report for November, released on Friday, helped improve the long-term outlook for monetary policy after showing above-forecast job creation.

The Fed is likely to hike interest rates today, but unless it also offers a hawkish outlook upon interest rates for 2018, USD could fall as speculators lock in profits.

EUR/USD Exchange Rate – Euro Trapped in Narrow Range Ahead of FOMC and ECB Policy Decisions

The Euro has edged lower versus the US Dollar over the past few days, with markets expecting greater policy divergence between the States and the Eurozone when the Federal Reserve and European Central Bank (ECB) announce their latest policy decisions.

Eurozone data remained fairly mixed, but Friday’s German trade figures knocked the Euro after showing that exports continued to decline in October – against forecasts of 1% growth.

The trade surplus fell from €24.1 billion to €18.9 billion, which dragged the current account surplus down from €25.8 billion to €18.1 billion.

The ECB announces its latest monetary policy decisions tomorrow. There have been some policymakers recently who have suggested that the ECB needs to fix a definite end date for the quantitative easing programme, to avoid markets pricing in a further extension of asset purchases.

Should this prospect crop up again in the meeting, the Euro could receive a boost.

Data Affecting This Week’s Pound, Euro and US Dollar Exchange Rate Forecasts

December 13th 19:00 USD FOMC Rate Decision (Upper Bound) (DEC 13)

December 13th 19:30 USD Yellen Holds Press Conference Following FOMC Meeting

December 14th 12:00 GBP Bank of England Bank Rate (DEC 14)

December 14th 12:45 EUR European Central Bank Rate Decision (DEC 14)

December 14th 13:30 EUR ECB President Draghi holds news conference in Frankfurt

December 14th 13:30 USD Retail Sales Advance (MoM) (NOV)

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail