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19th of July 2018

Economy



Pound US dollar exchange rate: GBP muted as markets await Brexit white paper

The pound is trading in a narrow range against the US dollar and the majority of its other peers this morning as GBP investors await the release of a long-awaited white paper outlining the UK government’s blueprint for Brexit.

The government promises the paper will lay out a ‘comprehensive vision’ for the UK’s future trade relationship with the EU as well as ensuring that the two sides continue to co-operate in the future.

One of the key points of the paper will be how the government plans to avoid a hard border in Northern Ireland, something which has proved to be a major headache in negotiations.

It remains to be seen how markets will react to the paper, but many pound investors are optimistic that the publication could strengthen Sterling by providing some clarity on the Brexit process.

However, the EU’s reaction will also be key, with the union’s chief negotiator, Michel Barnier previously warning that any proposals much be compatible with EU guidelines, while also avoiding creating any extra red tape.

While the new Brexit Secretary Dominic Raab has said that the paper will respect the result of the EU referendum, Theresa May still faces a possible rebellion from hardliners within her party, many of whom see the proposals as compromising Brexit.

At the same time the US dollar is holding steady this morning as traders await the release of the latest US consumer price index later this afternoon.

Today’s data is forecast to show inflationary pressures continued to build in the US last month, with inflation expected to have climbed from 2.8 per cent to 2.9 per cent during the month of June.

The US dollar is poised to surge with the release, with another uptick in inflation bolstering the prospects of the Federal Reserve raising interest rates an additional two times this year.

Looking past today’s data, movement in the pound US dollar exchange rate is likely to continue to be driven by trade and political uncertainty in the coming days.

In terms of the pound, the recent political turmoil in the UK is likely to be a major driver of momentum, with reported plans by Conservative Eurosceptics to hamper the EU customs bill likely to further complicate the Brexit process.

Meanwhile the growing trade tensions between the US and China are likely to continue dominating headlines for the foreseeable future.

The US dollar is likely to find itself in high demand as investors look to shield themselves from the fallout of a global trade war.

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