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US Dollar Vs Pound Hits 1-Month High, Ahead of Boris Speech

Market CommentaryUS Dollar Vs Pound Hits 1-Month High, Ahead of Boris Speech
US Dollar Vs Pound Hits 1-Month High, Ahead of Boris Speech
US Dollar Vs Pound.

The US dollar vs pound interbank exchange rate stands at 0.8188 today, its strongest in one month, 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 it’s since risen by +2.91%.

This could benefit you, because when you transfer money to the UK from the USA, you might now get a higher pound total, compared to if you’d exchanged currencies in the last month.

In turn, this might make it more affordable if you’re a Brit selling property abroad in the United States to repatriate the funds to the UK, or if you’re making regular payments to Great Britain.

To stay up-to-date 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 mighty buck versus sterling recently, visit Pure FX’s USD to GBP Exchange Rate Updates page. Here, click on the latest article to read the news.

One reason why the USD to GBP has reached this one-month high is because UK Prime Minister (PM) Boris Johnson is due to give his Conservative Party conference speech in Manchester today.

Another factor why the US dollar to sterling has strengthened on the interbank market is because Mr. Johnson’s revised Brexit plans have been leaked to the press, and risk being rejected.

However, looking to the foreseeable future, the US dollar vs pound rate might be affected, because the United States’ manufacturing sector shrank at the fastest pace in 10 years in September.

US Dollar Vs Pound Strengthens, as Boris to Give Conference Speech

One reason why the US dollar versus the pound has reached this one-month high on the interbank market is because it’s thought that Mr. Johnson will reaffirm that he wants the UK to exit the European Union (EU) by the end of the current deadline, October 31st, according to the BBC, when he delivers his conference speech today.

Ahead of Mr. Johnson’s speech today, extracts have already been released. Mr. Johnson will say that:

“People are beginning to feel that they are being taken for fools. They are beginning to suspect that there are forces in this country that simply don’t want Brexit delivered. If they turn out to be right in that suspicion, I believe there’ll be grave consequences for trust in democracy.”

In addition, the PM will confirm that he intends to deliver Brexit by the existing deadline of 31st October. However, for Mr. Johnson to do this, he’ll either have to disobey opposition MPs’ Benn Act or he’s found a loophole to it.

The Benn Act legally obligates Mr. Johnson to request a second Brexit extension, if there’s no agreement in place by October 19th, two days after a crucial EU summit.

If Mr. Johnson simply disobeys the law, then opposition MPs will very likely go to the Supreme Court, to either force the PM to request a Brexit extension, or to appoint someone else to do it.

This would further erode Mr. Johnson’s trust with opposition MPs, which is notable because Mr. Johnson leads a minority government, and needs opposition MPs’ support to pass a Brexit deal.

Alternatively, if the PM suggests that he won’t obey the Benn Act, yet he’ll respect the Rule of Law, this would tell us that Mr. Johnson’s government has found a legal loophole to avoid extending Brexit further.

In these circumstances, opposition MPs will likely take control of Parliament’s legislative agenda again, to revise the Benn Act, to make it more difficult for Mr. Johnson to disobey.

In either case, Mr. Johnson’s speech at the Conservative conference will help guide us as to the PM’s Brexit strategy for the coming weeks.

If Mr. Johnson takes a combative attitude to opposition MPs’ wishes, and continues to insist that we’ll exit the EU by October 31st, as looks likely, this could agitate the financial markets. In turn, the possibility of a ‘No Deal’ has weakened the pound.

USD to GBP Rate Gains, as Boris’s Revised Brexit Plans Leaked

In addition, another factor why the US dollar vs pound interbank exchange rate has reached this one-month high is because PM Johnson’s revised Brexit plans have been leaked to the press, ahead of their being formally presented to Brussels today.

It’s feared that, if Brussels rejects these plans, it reduces the possibility that there’ll be a Brexit agreement in the foreseeable future.

According to leaks published in The Telegraph broadsheet, Mr. Johnson’s revised Brexit plans include radical proposals for Northern Ireland’s border. This is to overcome the so-called “backstop”, the main sticking point in the UK’s current draft Withdrawal Agreement.

As it stands, the “backstop” could tie the UK to the EU’s customs rules in future, stopping the UK from signing trade deals.

To overcome the “backstop”, Mr. Johnson’s government is now proposing that, after Brexit, Northern Ireland would have “two borders for four years”, and a special relationship with the EU up to 2025.

According to the plans, there’d be both customs checks away from Northern Ireland’s border with Ireland, and also between Northern Ireland and the rest of the UK, down the Irish Sea.

At the same time, a joint Irish/British council would be revived, to discuss Northern Ireland’s regulatory status in future. At the end of 2025, Northern Ireland’s devolved Stormont assembly would decide whether the province would follow the EU’s customs rules, or the UK’s.

The UK is presenting these plans as a formal legal text, its most detailed proposals for a Brexit deal so far.

Importantly, Mr. Johnson’s government has already shared these revised plans with the Conservatives’ Northern Irish allies in Parliament, the Democratic Unionist Party (DUP).

The DUP has confirmed that they’re mostly “content” with the proposals. This raises the odds that opposition MPs might vote in favour of the plans, and that this Brexit deal could pass through Parliament.

However, although the DUP has provisionally approved Mr. Johnson’s plans, the Irish government allegedly leaked the proposals to the press, shortly after receiving them.

Downing Street specifically asked Dublin not to, so this bodes ill. For example, according to The Times, "Within hours of the meeting details of the plan were leaked to the media, infuriating Downing Street.”

Moreover, these plans are understood to be Mr. Johnson’s final Brexit proposals. So if the EU rejects these documents, it’s not clear what will happen next in the negotiations.

For instance, Christin Tuxen, analyst with Danske Bank, said ahead of Brussels receiving the plans that: "The proposal seems dead on arrival in Ireland, which probably means for the rest of the EU as well."

One possibility is that, if the EU rejects Mr. Johnson’s revised plans, then the PM will double down on campaigning for a general election, in which the Conservatives would favour a ‘No Deal’ Brexit.

This would be to fend off the threat from Nigel Farage’s Brexit Party, yet would separate the UK’s economic ties with the EU. This possibility has weakened the value of sterling today.

US Dollar to Pound Might Be Affected, as US Manufacturing Hits 10-Year Low

However, looking forward, the US dollar vs pound interbank exchange rate could be affected, because the United States’ manufacturing sector shrank at the fastest pace in 10 years in September, said closely-watched statistics yesterday.

This suggests that America’s and China’s trade war is increasingly weighing down on US GDP (Gross Domestic Product) growth in 2019.

According to US economics watchdog ISM on Tuesday 1st October, the USA’s manufacturing PMI (Purchasing Managers’ Index) fell to 47.8 this month. This was below financial market forecasts for 50.1, as well as August’s figure of 49.1, reports CNBC.

Any figure below 50.0 points to declining economic output, and this was American factories’ lowest figure in over a decade, since 2009.

Following these results, ISM’s Chair Timothy Fiore said that: “Global trade remains the most significant issue, as demonstrated by the contraction in new export orders that began in July 2019. Overall, sentiment this month remains cautious regarding near-term growth.”

Elsewhere, Katherine Judge, an economist at CIBC, said that: “the index of new export orders sank all the way down to 41.”

It's thought that America’s manufacturing output contracted in September, because of the United States’ and China’s increasingly bitter trade war.

In the last 18 months, the world’s two largest economies have imposed tariffs worth hundreds of billions of dollars on each other, to vie for economic dominance. Now, there’s growing evidence that this is slowing America’s factory sector.

Following ISM’s release yesterday, US President Donald Trump tweeted to blame other factors for the US manufacturing slowdown.

Mr. Trump said that: "As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. Pathetic!”

Here, President Trump refers to the Federal Reserve’s interest rates, which at 1.75%-2.0% are higher than most of the industrialised world.

This encourages the world’s money managers to buy US dollar-denominated assets, strengthening the greenback, and making America’s exports more expensive abroad. To allay this, the Fed could cut interest rates further, later in 2019, which may affect the US dollar.

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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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