Pound US Dollar (GBP/USD) Exchange Rate Subdued as UK-France Fishing Row Continues
The Pound US Dollar (GBP/USD) exchange rate hit a three-week low earlier today ahead of the Federal Reserve interest rate decision tomorrow and the Bank of England’s (BoE) on Thursday.
Sterling has pared some of its losses after tensions between the UK and France appeared to de-escalate on comments from French President Emmanuel Macron, with GBP/USD muted at $1.3646.
Pound (GBP) Limited by Lingering Brexit Tensions
The Pound (GBP) is struggling for direction today amid Brexit-related tensions, and before the BoE interest rate decision later in the week.
After tensions between the UK and France appeared to rise over post-Brexit fishing rights at the weekend, French President Emmanuel Macron seems to have de-escalated the situation slightly.
France had planned measures to stop British fishing boats from unloading their catches in French ports, but Macron has delayed the sanctions while talks between UK and French officials are ongoing.
The French President said:
“Since this afternoon, discussions have resumed on the basis of a proposal I made to Prime Minister (Boris) Johnson. The talks need to continue.”
“My understanding is that the British were going to come back to us tomorrow with other proposals. All that will be worked on. We’ll see where we are tomorrow at the end of the day, to see if things have really changed.”
Meanwhile, UK-EU talks on the Northern Ireland protocol are ongoing and the two sides appear no closer to reaching an agreement.
European Commission Vice-President Maros Sefcovic recently said he believes the UK is on ‘a path of confrontation’, while Brexit Minister Lord Frost has accused the European Union of behaving “without regard to the huge political, economic and identity sensitivities” in Northern Ireland.
US Dollar (USD) Lacks Direction ahead of Fed Rate Decision
The US Dollar (USD) is also lacking catalysts of movement today ahead of the Federal Reserve interest rate decision tomorrow.
Softening US Treasury yields are also limiting USD exchange rates, as investors hold before the Fed announcement.
The US Dollar has faced headwinds since the beginning of the week after the ISM manufacturing PMI disappointed by showing activity slowed in the sector in October, with a reading of 60.8, down from 61.1 in September.
Data also revealed that new order growth slowed to a 16-month low, and production rose at a slower pace as supply chain problems and rising costs hit US manufacturing.
A risk-on mood on Monday that pushed equity market higher also weighed on safe-haven demand for the US Dollar.
Pound US Dollar Forecast: GBP/USD Set for Volatility on Data and Central Bank Decisions
The Pound US Dollar exchange rate looks set for significant movement this week, with investors waiting for interest rate decisions from the Federal Reserve and BoE.
While the Federal Reserve is widely expected to leave interest rates unchanged, signals from the central bank have increasingly pointed to tapering its bond-buying programme.
Before the Fed’s announcement, high-impact US data may drive additional movement in USD exchange rates.
ADP employment change figures for October, US factory orders in September, and the ISM non-manufacturing PMI will likely cause some movement.
The ISM services PMI will likely be the main focus of economic data, with another month of expansion in service sector activity expected. Forecast point to a reading of 62 last month, up from September’s 61.9.
Meanwhile, the UK’s finalised services PMI may lend support to the Pound on Wednesday morning.
After initial estimates surprised by showing a reading of 58 in October, up from 55.4, confirmation of strong growth in the UK service sector last month may bolster GBP exchange rates.