Three and a half years after the Brexit referendum, today the UK is leaving the EU. This is not a surprise for investors therefore it is not expected to bring volatility to the pound. The pound is drifting lower in early trade on Friday after rallying 0.5% across the previous session to close Thursday at US$1.3090, snapping a 5-session losing streak.
GBP/USD: UK officially leaves the EU today
The UK officially leaves the EU today. It will, however, remain in the single market and customs union throughout the transition period, which extends until the end of the year. What happens after the transition period is still unknown. The UK’s exit from the EU could focus investors’ attention on these complex negotiations that lay ahead and the very limited time frame within which a deal needs to be agreed.
Boris Johnson will lay down the gauntlet in a speech next week where he is expected to tell the EU that sovereignty is more important that tariffs and border checks. This will set the tone for the start of trade talks and could raise fears of the two sides failing to reach a trade deal. This would result in a no deal exit from the customs union and the single market at the end of the year, which could cause significant disruption to the UK economy.
No deal Brexit is a fear that the BoE highlighted in the press conference following its interest rate announcement in the previous session. The BoE voted 7-2 to keep interest rates on hold. The more hawkish split and a broadly upbeat BoE sent the pound jumping to a four day high in the previous session. The central bank also slashed growth forecasts to just 0.8% this year and 1.5% next year.
The US dollar
Demand for the dollar slipped in the previous session after weak US data ended the dollar’s safe haven rally from the coronavirus fallout. Data showed that the US economy posted its slowest annual growth in three years in 2019. Personal consumption also weakened significantly. The softer numbers raised concerns over the health of the US economy, dragging on the US dollar lower and 5 session winning.
Today dollar investors will look towards US inflation as measured by PCE, the Fed’s preferred measure of inflation, consumer confidence figures will also be under the spotlight. Safe haven support for the dollar could also return as the World Health Organisation declares a world health emergency amid the coronavirus outbreak.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar. |
