GBP/USD: Pound Resumes Fall On Brexit Uncertainty

The pound slumped through the key psychological $1.30 level ahead of the start of UK – EU trade negotiations. No trade deal fears and a strong rebound in US manufacturing saw the pound US dollar exchange rate dive over 1.5% across Monday’s session. Pound sterling vs US dollar is extending those losses in early trade on Tuesday.

At the time of writing GBP/USD is trading 0.1% lower at US$1.2985.

GBP/USD – No trade deal Brexit fears are resurfacing

Pound investors have wasted no time selling out of sterling as Prime Minister Boris Johnson set out his vision for the UK – EU post transition period relationship. Boris Johns said that there was no need for the UK to follow EU rules on trade, instead calling for a Canadian Style free trade deal. He also made it clear that he was fully prepared for the UK to leave without a trade deal.

Meanwhile Chief EU negotiator Michel Barnier said that an ambitious trade deal required a level playing field, implying that very similar rules were a pre-requisite. Pound traders have come away with the idea that the prospect of no trade deal being reached has increased.

No trade deal fears are expected to drive the pound for the near time. Today investors could briefly look towards Construction PMI data. Analysts are predicting that activity in the construction sector contracted at a slower rate in January.

Dollar

The dollar soared higher in the previous session following a solid rebound in the manufacturing sector. The closely watched figures from the Institute for Supply Management (ISM) revealed that manufacturing index increased to 50.9 last month, the highest level since July and up from 47.8 in December.

The improved ISM figure reflects the easing tensions between US and China after they signed the first phase trade deal. The data offered optimism that the prolonged slump in business investment is bottoming out.

Today US data will remain in focus as investors look towards US factory orders, which are also expected to rebound in December. Analysts are predicting factory orders to have increased 1.1% month on month in December, up from -0.7% decline in November. This could add to evidence that the US economy is rebounding.

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