The British pound is lower against the US dollar on Monday afternoon with investors preferring the safe-haven appeal of the dollar given the outbreak of the coronavirus in China, which continues to spread. At the same time, the pound is under pressure in a week where interest rates in the United Kingdom could be cut back to a record low.
GBP/USD was lower by 7 pips (-0.05%) at 1.3073 with a daily price range of 1.305 to 1.31 as of 1.30pm GMT. An early spike above 1.31 was faded, sending the currency pair back to lows of the day and drifting back towards the middle of its 5-day price range.
Today marks the start of a five-day countdown to Brexit, however Brexit happening is now fully accepted by markets. Boris Johnson’s Brexit bill has passed the House of Commons and House of Lords and gained Royal Ascent last week from the Queen. So Brexit-related effects on the pound moving forwards will relate more to the forthcoming EU-UK negotiations for a Free Trade Deal (FTA). Negotiations are scheduled to officially start in February. A spokesperson for the UK Prime Minister said on Monday that David Frost is to lead the UK team in talks with the European Union.
But before Brexit happens, there is a decision from the Bank of England this week. Market pricing suggests a less than 50% chance that interest rates get lowered. Those are unusually even probabilities before a central bank meeting because policymakers typically give hints about their intensions in the lead up to a big decision. The issue before this meeting is that the data does not support the messaging from Bank of England Governor Carney and some other members of the Monetary Policy Committee (MPC), the panel of nine who decide interest rates.
The dollar has been broadly in favour on Monday, only losing out to the Japanese yen and gold as a preferred haven for investors. At 15:00 GMT US New Homes Sales for December are forecast to be 0.73M, up from the 0.719M sold in November.