GBP/USD Exchange Rate Falls as No-Deal Brexit Odds Continue to Rise
The Pound to US Dollar (GBP/USD) exchange rate fell by -0.7% today, with the pairing currently trading around $1.326.
Sterling struggled today following a lack of progress in critical UK-EU Brexit talks last night between Prime Boris Johnson and the President of the European Commission, Ursula von der Leyen.
UK Foreign Secretary Dominic Raab commented:
‘It’s fair to say that, whilst there was a good conversation last night, and it was frank and it was candid, the significant points of difference remain. I don’t think we can keep going on at that pace without having some progress and some flexibility.’
Socgen exchange rate analysts expect the US dollar will weaken vs Euro and the British Pound in 2021 with a lack of yield support leading to a further correction of overvalued conditions.
The US dollar may, however, gain temporary support in the first quarter of 2021 amid weaker risk appetite.
Other major currency moves are likely to be driven primarily by dollar weakness, although resistance to local currency appreciation will also be an important factor and could create important tensions as currency gains are resisted.
US Dollar to weaken overall, budget deal would support the Euro
According to Socgen, the dollar is overvalued by around 10% in real terms as a result of macro policies pursued ahead of the pandemic.
The Pound to Euro (GBP/EUR) exchange rate fell back towards its recent monthly lows in the wake of a lack of Brexit breakthrough at Wednesday’s Brussels dinner.
Although the two sides agreed to extend discussions until Sunday investors were ultimately disappointed by this lack of resolution.
As a result, the odds of a no-deal Brexit scenario picked up sharply once again, leaving the Pound on the back foot against its rivals on Thursday.
Demand for the Pound also weakened in response to the latest UK gross domestic product report, which showed that the monthly growth rate had slowed from 1.1% to 0.4% in October.
The Pound to South African Rand (GBP/ZAR) exchange rate dipped following news that the European Union (EU) had already drawn up no-deal Brexit contingency plans.
Furthermore, UK Foreign Minister, Dominic Raab, said that it was ‘unlikely’ that negotiations will extend beyond Sunday, sparking off concerns as the two sides struggle to find a consensus.
Mr Raab added:
‘We are rapidly approaching the point where we need some finality.’
Meanwhile the President of the European Commission, Ursula von der Leyen, said that a ‘fine balance of fairness’ had not been ‘achieved so far’.
As a result, GBP investors are becoming increasingly concerned that the UK could be headed for a chaotic exit from the EU on January 1st.