GBP/USD: Pair Struggles At $1.29 On No Brexit Trade Deal Threat & Fed Cut Expectations

Both the pound and the US dollar were weak in the previous session, meaning that as a pair they were well matched. The pound slipped just 0.2% against the greenback, hitting a weekly low of US$1.2860. Brexit and coronavirus fears continue to drive movement in sterling and the greenback.

GBP/USD is looking to retake US$1.29 in early trade on Friday ahead of more high impacting US data. The pair is trading 10 points or 0.07% higher at 06:15 UTC.

No Trade Deal Brexit Fears

The pound was under pressure across the board in the previous session as Boris Johnson unveiled his mandate for trade talks with the EU. Boris Johnson’s hard line approach and threat to walk away from trade talks in June if insufficient progress has been made unnerved pound investors. The prime minister is adopting that stance for two reasons, firstly so that the EU wouldn’t run down the clock in negotiations to the December 31^st deadline and secondly to allow the U.K. time to prepare for a hard exit on World Trade Organisation rules.

Boris Johnson also refused to release updated forecasts on his preferred Canada style agreement. Back in 2018, government data indicated that a Canadian style trade deal would wipe 5% off U.K. economic growth across a 15-year period. Meanwhile, leaving on WTO rules was expected to wipe 8% growth off the U.K. before 2035.

Boris Johnson’s mandate for trade talks has increased the chances of the U.K. leaving the EU without a deal. This reality dragged on the pound and is expected to limit any gains going forward.

US dollar 71% Probability of Fed Cut

The dollar was out of favour in the previous session amid growing fears that the coronavirus outbreak was going to hit the US and the global economy hard. The US stock market crashed another 2% as investors sold out of riskier assets. The US dollar, which is often considered a safe haven didn’t benefit from safe haven flows. This is because investors are increasingly pricing in an interest rate cut or even two by the Federal Reserve in the coming months.

US data in the previous session was upbeat with durable goods sales bearing expectations. US GDP was confirmed at 2.1%.

Today investors will look towards the Fed’s preferred measure of inflation, PCE. Whilst an encouraging read could help boost the dollar, gains could be limited as coronavirus fears dominate.

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