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GBP Hits 2-Week High Versus USD, as EU Drops Brexit Punishment Clause

Market CommentaryGBP Hits 2-Week High Versus USD, as EU Drops Brexit Punishment Clause
The pound to US dollar interbank exchange rate has hit 1.4145 today, its highest since February 2nd, as the EU has dropped a "sanction clause" for the UK
The pound to US dollar interbank exchange rate has hit 1.4145 today, its highest since February 2nd, as the EU has dropped a “sanction clause” for the UK’s Brexit transition phase. Image credit: Raphael Pto.

by Peter Lavelle

Welcome to Pure FX’s latest update of the pound to US dollar interbank exchange rate.

This tells you when it’s a favourable time to exchange pounds to US dollars, for your money transfer!

Sterling continues to climb against the greenback! The pound to US dollar interbank exchange rate has hit 1.4145 today, its highest in 2 weeks, or since February 2nd.

The pound has strutted its stuff versus the US dollar, because reports emerged yesterday that the EU is considering dropping a “punishment clause” for the UK’s Brexit transition phase.

Sterling has flown higher, in particular as the EU’s Brexit working party is thinking about watering down a mechanism, that would sanction the UK for breaking EU rules, during the transition.

Instead, the EU now plans to include its standard infringement process for the Brexit transition text. This tells us that EU has softened its stance to the UK over Brexit, thus raising the pound.

This has boosted sterling, because these reports lift the odds that the UK and EU will agree a Brexit transition deal in the coming weeks, thus lifting the UK’s economic outlook.

Also, the pound has also jumped, as financial markets now think that that there’s an almost 80% chance that the Bank of England will lift UK interest rates sooner, above 0.50%!

US dollar slides, as America’s deficits soar

What’s more, the pound to US dollar interbank exchange rate has also strengthened, as America’s fiscal and trade deficits have soared in recent months, and look set to rise further.

The greenback has lost out, first because America’s budget deficit has jumped +11.0% year-on-year in the last 4 months, to -$176 billion, thus putting America’s finances onto stormy seas.

In addition, in the past week, Congress has passed a -$1.5 trillion tax cut, plus +$300 billion in extra spending. This will further lift America’s fiscal shortfall, and so weaken the US dollar.

Elsewhere meanwhile, America’s trade deficit jumped to a record -$50 billion in December, as the USA imported more than it sold to the rest of the world. This has weighed on the buck too.

In total, the USA’s fiscal and trade deficits stand close to 6% of America’s GDP at present. This puts into doubt President Trump’s economic management, and weakens the US dollar.

With all this in mind, the pound has hit this 2-week high versus the US dollar today, and could rise further!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

References

1. Alexandria Arnold and Katherine Greifeld, “Dollar Under Siege With U.S. Deficits Back on Wall Street’s Radar”, February 15th 2018, Bloomberg.com, https://www.bloomberg.com/news/articles/2018-02-15/stock-rally-may-pause-in-asia-yen-strengthens-markets-wrap
2. Anonymous, “Brexit: EU ‘removes transition punishment clause'”, February 15th 2018, BBC.co.uk, http://www.bbc.com/news/uk-politics-43062112
3. Charlotte Ryan, “Pound Gains as EU Said to Be Softening Brexit Transition Stance”, February 15th 2018, Bloomberg.com, https://www.bloomberg.com/news/articles/2018-02-15/pound-gains-as-eu-said-to-be-softening-brexit-transition-stance

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