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US Dollar Vs Pound at 5-Week High, as Merkel Talks Down Deal

Market CommentaryUS Dollar Vs Pound at 5-Week High, as Merkel Talks Down Deal
US Dollar Vs Pound at 5-Week High, as Merkel Talks Down Deal
US Dollar Vs Pound.

The US dollar vs pound interbank exchange rate stands at 0.8195 today, its highest in five weeks, or since Wednesday 4th September.

By comparison, back on Friday 20th September, the so-called greenback was as weak as 0.7956 versus sterling, so the mighty buck has since risen by +3.0%.

This could benefit you, because when you transfer money to the UK from the United States, you might get a higher pound total, compared to if you’d bought sterling in the last five weeks.

In turn, this could make it more profitable for you, if you’re a Brit selling property abroad in New York or Los Angeles, to repatriate the funds from your real estate sale back to the UK.

To stay updated with the US dollar vs pound interbank exchange rate, visit Pure FX’s Rates & Tools page. Here, select ‘USD’ (United States Dollar) to ‘GBP’ (Great British Pound).

Also, to check what’s affecting the value of the greenback against sterling on the interbank market recently, visit our USD to GBP Exchange Rate Updates page. Here, click on the latest news.

One reason why the US dollar vs pound interbank rate has strengthened is because German Chancellor Angela Merkel has cut the odds of a Brexit deal, in a phone call with UK Prime Minister Boris Johnson yesterday.

However, looking to the foreseeable future, the US dollar’s value against sterling could be influenced, because the UK and the EU nonetheless continue to negotiate toward a Brexit agreement.

US Dollar Vs Pound Strengthens, as Merkel Cuts Odds of Brexit Deal

As I mention, one reason why the US dollar has hit this five-week high versus the pound on the interbank market today is because, yesterday, on a telephone call between German Chancellor Angela Merkel and UK Prime Minister (PM) Boris Johnson, Dr. Merkel apparently hardened her Brexit position, reports the BBC.

This may increase the odds that there’ll be a ‘No Deal’ Brexit in the coming weeks.

In a telephone call between Dr. Merkel and Mr. Johnson on Tuesday 8th October, the UK PM reportedly asked the German Chancellor to “get the boat off the rocks” regarding the Brexit talks.

This refers to the fact that, following the UK’s publishing its revised Brexit proposals late last week, especially regarding the Northern Irish border “backstop”, they’ve received a lukewarm reception from the EU.

However, according to a Number 10 Downing Street source, who’s reported the conversation to Sky News, Dr. Merkel declined to throw a rope to Mr. Johnson, so to speak.

Instead, Germany’s Chancellor apparently said that, while the UK could exit the EU now under its current proposals, Northern Ireland would have to stay in the EU’s Customs Union “forever”, to avoid a hard border on the island of Ireland.

The Downing Street source said that Dr. Merkel repeated “forever” on “multiple occasions”.

According to the source: "If this represents a new established position, then it means a deal is essentially impossible not just now but ever. It also made clear that they are willing to torpedo the Good Friday Agreement.” So Dr. Merkel’s remarks have not gone down well with the UK government.

After all, if Dr. Merkel, the leader of the European Union’s largest, most powerful economy, insists that Northern Ireland remains in the EU’s Customs Union, she’s effectively insisting that the UK must be constitutionally divided after Brexit.

This would represent a significant hardening of the EU’s Brexit position, and would be unacceptable to any UK government, including PM Johnson’s.

Following the German Chancellor’s and UK PM’s call, the source said that this was a “clarifying moment” that suggests that a Brexit deal is “essentially impossible, not just now but ever.”

This is because, if the source’s report of the telephone call are accurate, they suggest that the EU isn’t willing to negotiate with the UK, rather its intention is to impose conditions on the UK after we leave.

Joshua Mahony, an analyst with IG, said about the phone call that: "The big question is whether this is the official stance of the EU, with confirmation essentially pointing towards a likely no-deal Brexit.”

Mr. Mahony added that: “It looks likely that the electorate will have to decide between a Conservative-led no-deal Brexit and a Corbyn-led second referendum; neither of which the markets would take particularly well to."

After all, if the EU hardens its position and the UK refuses to budge, the UK still probably won’t exit on October 31st, the current Brexit deadline. Instead, according to opposition MPs’ Benn Act, passed last month, PM Johnson is legally obliged to request a second Brexit extension by October 19th, if there’s no deal agreed.

This would give the UK time to hold a general election, to decide the course of Brexit. This would further contribute to the UK’s political uncertainty, so this possibility has weakened sterling.

USD to GBP Rate Might Be Affected, as UK and EU Continue to Negotiate

However, looking to the foreseeable future, the US dollar vs pound interbank exchange rate might be affected, because in spite of Dr. Merkel’s and Mr. Johnson’s telephone call on Tuesday, the UK and the EU continue to negotiate Brexit.

In fact, it’s questionable whether the reports of what the German Chancellor said are accurate. So a Brexit deal in the next weeks remains possible.

To begin with, following reports of Dr. Merkel’s remarks on Tuesday, a spokesperson for the European Commission said that she “doesn’t recognise the tone” struck by Merkel.

The spokesperson added that the EU’s position "has not changed, we are working for a deal", and that, since the UK’s and EU’s teams remain in contact, it’s not clear "how the talks could have broken down", according to The Telegraph newspaper.

This raises the possibility that the source’s account of the German Chancellor’s and UK PM’s telephone conversation yesterday isn’t accurate.

It could be that, in the midst of intense negotiations between the UK and the EU, someone’s remarks were misinterpreted, or an official spoke to a journalist to try and show off their knowledge, yet misreported the facts. So the EU has since relaxed its tone.

Moreover, it’s noteworthy that PM Johnson and Ireland’s Taoiseach (Prime Minister) Leo Varadkar spoke by telephone yesterday, to discuss the state of the Brexit negotiations.

Both men agreed that they want to make progress, and reach a deal. To this end, Mr. Johnson will travel to Dublin this Thursday or Friday, to discuss the UK’s amended Brexit plans with Mr. Varadkar in person, reports The Irish Times.

So this suggests that the UK and the EU remain engaged with each other to reach a deal, both at the top level, between heads of state, and at a technical level, between the two sides’ negotiating teams.

This further increases the possibility that, in spite of the past day’s media reports to the contrary, the UK and the EU could reach a Brexit agreement in the foreseeable future.

The crucial date for negotiations may be next Thursday 17th October, when the EU is due to hold an important summit.

The EU has argued that it won’t allow for last-minute negotiations at the summit. However, when Europe has faced crises in the past, such as the Greek debt crisis, the EU often ends up reaching an agreement at the very last moment. This could be the case for Brexit also.

In addition, it’s worth adding that, even though Dr. Merkel seemingly poured cold water on hopes for a Brexit deal yesterday, sterling remains significantly above its 2019 lows.

Back in Sunday 11th August, the pound to US dollar interbank exchange rate stood as low as 1.2024, whereas today it’s at 1.2257. So this suggests that some financial market investors remain hopeful of an agreement.

For example, Thu Lan Nguyen, an analyst with Commerzbank, says that "Clearly some market participants had not given up hope until the last moment that the British government and the EU would be able to agree on an exit agreement before the EU summit in just under two weeks’ time.”

Ms. Nguyen added that: “Sterling eased significantly, but not as significantly as to assume that the majority of market participants now expect a no-deal Brexit to happen.” This may affect the value of the US dollar, looking ahead.

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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 Contact Us.

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