GBP/USD Exchange Rate Plunges to $1.28 After EU Ultimatum on Internal Markets Bill

GBP/USD Exchange Rate Undermined by Brexit Woes

The Pound to US Dollar (GBP/USD) exchange rate remains in the doldrums this morning after the EU hit out over the UK government’s plans to alter part of the EU withdrawal agreement.

At the time of writing the GBP/USD exchange rate is trading at around $1.2827, virtually unchanged from this morning’s opening rate.

Pound (GBP) Faces Bumpy Road as Brexit Trade Talks at Risk

The Pound (GBP) is trading at a one-month low against the US Dollar (USD) this morning, having plummeted almost 5 cents so far this week, in response to heightened Brexit jitters.

This came to ahead on Thursday after the EU delivered an ultimatum to the UK government, demanding it ditch plans to undermine the EU withdrawal agreement with its internal markets bill or face legal action.

The EU’s statement read:

‘The EU does not accept the argument that the aim of the draft Bill is to protect the Good Friday (Belfast) Agreement. In fact, it is of the view that it does the opposite.

‘the Withdrawal Agreement contains a number of mechanisms and legal remedies to address violations of the legal obligations contained in the text – which the European Union will not be shy in using.’

US Dollar (USD) Strengthened by Risk-Off Trade

At the same time, the US Dollar (USD) remains well supported this morning as investors favour the safe-haven currency amidst a souring of market sentiment.

This has been partly brought about by Brexit jitters, but appeared to be mostly attributed to yesterday’s sell-off in US equity markets.

The US Dollar may look to extend these gains through the remainder of this week’s session as well, with USD exchange rates likely to be given a boost if this afternoons consumer price index shows that US inflation printed higher in August.

GBP/USD Forecast: BoE and Fed Rate Decisions in Focus Next Week

Turning to next week’s session, we will see monetary policy back in the spotlight, with both the Federal Reserve and Bank of England (BoE) set to hold their latest policy meetings.

While neither is expected to announce any major policy decisions this month, their forward guidance could have a material impact on the Pound to US Dollar (GBP/USD) exchange rate.

In terms of the Fed markets will be looking for more insight into how the bank’s change to its average inflation target could alter future policy, with analysts predicting it will open the door to more monetary easing.

Meanwhile, GBP investors will be keeping any eye out for any mention of negative interest rates, as the BoE continues to weigh up whether to pursue unconventional monetary policy.

Of course, the GBP/EUR exchange rate is also likely to remain highly sensitive to Brexit developments through next week’s session, with the pairing likely to face considerable pressure if the UK government pushes forward with its bill to override the EU withdrawal deal.

Matthew Andrews

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