Pound Slides as France Sees No-deal Brexit as Most Likely Outcome

GBP/USD Exchange Rate Sinks as No-deal Brexit Assumed by French Government

Updated: The Pound Sterling to US Dollar (GBP/USD) exchange rate maintained it downward bias this afternoon as Bloomberg reports the French government is now operating on the assumption that a no-deal Brexit is the most likely outcome.

This fed into an existing Sterling selling bias ahead of Boris Johnson’s talks with Angela Merkel which are expected to result in the German Chancellor firmly rebuffing Johnson’s call for the EU to scrap the Irish backstop.

In the meantime, the US Dollar continued to trend higher this afternoon on the expectation that the FOMC minutes will not contain any dovish surprises.

GBP/USD Exchange Rate Muted Ahead of Johnson’s Trip to Germany

The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading in a narrow range as markets brace for Boris Johnson’s meeting with German Chancellor Angela Merkel later today.

At the time of writing the GBP/USD exchange rate is trading at around $1.2139, leaving the pairing slightly below this morning’s opening rate

Johnson-Merkel Meeting Unlikely Deliver Brexit Breakthrough

The Pound (GBP) is trading on the back foot this morning as markets await details from Boris Johnson’s first overseas trip as Prime Minister.

The UK PM will meet with Angela Merkel later today, with the issue of Brexit likely to loom over talks between the two leaders.

Johnson is expected to reiterate his call for the EU to scrap what he has deemed the ‘anti-democratic’ Irish backstop.

Merkel in turn is expected to be firm in her rebuttal, making it clear that German will not support the PM’s proposal to ditch the backstop.

This could result in a pullback in Sterling today, after GBP exchange rates bounced back late on Tuesday after Merkel stuck a more magnanimous tone, suggesting practical solutions could be found to resolve the issue of the Irish backstop.

US Dollar (USD) Buoyed by Trade War Jitters

At the same time, the US Dollar (USD) is edging higher this morning as heightened trade tensions between the US and China continue to stoke demand for safe-haven currencies.

Optimism regarding US-China trade talks next month took another knock overnight, after US President Donald Trump came out swinging against Beijing.

Speaking to reporters in the oval office Trump said:

‘It’s about time, whether it’s good for our country or bad for our country short term…..The fact is somebody had to take China on.

‘This is something that had to be done. The only difference is I am doing it.’

Trump also sought to dispel concerns the trade dispute is having a negative impact on the US economy, claiming suggestions of a looming recession were overblown.

GBP/USD Exchange Rate Forecast: How Will Markets React to the FOMC Minutes

Coming up later today, the release of the minutes from the Federal Open Market Committee’s (FOMC) policy meeting in July could influence the Pound to US Dollar (GBP/USD) exchange rate later this afternoon.

As a result we could see the ‘Greenback’ tread higher this evening, should the minutes be mostly hawkish in tone.

However any upside in USD could ultimately be capped ahead of the Federal Reserve’s Jackson Hole Symposium later in the week, with investors hoping Jerome Powell’s speech on Friday will offer more insight into the bank’s policy outlook.

Meanwhile, Boris Johnson’s meeting with French President Emmanuel Macron on Thursday is likely to keep the pressure on Sterling this week as Macron’s frustration with Brexit is likely to result in a tense meeting between the pair.

Matthew Andrews

Contact Matthew Andrews