France’s Hard Brexit Expectation Sparks Pound’s Decline, Dollar Remains Strong
The Sterling Pound turned bearish on Wednesday after a revelation that the French government anticipates a hard Brexit despite the U.K.'s attempts to secure a soft landing.
French government’s sentiments regarding the Brexit issue comes on the heels of British Prime Minister Boris Johnson's demands for the U.K. to scrap the Irish backdrop agreement.
The latter was presented as an insurance policy that would allow the Irish border to remain open even after Britain exits the E.U. The demand for the agreement to be dropped makes it less likely for the U.K. to secure a favorable deal between now and the Brexit date.
The effects of the announcement were evident in the Sterling Pound’s bearish performance, which then translated to a 4% decline in the GBP/USD exchange rate. The French government’s outlook about the increasing likelihood of a hard Brexit also reflects investor sentiments and their reactions.
The GBP/USD currency pair traded as low as 1.2111 on Thursday before a massive uptick that saw the exchange rate soar to the day’s high at 1.2273. The currency pair traded at 1.2261 at the time of this press.
Meanwhile, British legislators are still hoping to secure a deal that will favor their economy. The timeframe given before the exit date is quickly running out and some believe that Johnson will have to initiate fresh talks with the E.U. regarding the trade situation once Brexit happens.
Dollar maintains its strength after the Federal Reserve policy meeting
The US dollar maintained its momentum on Thursday after a policy meeting by the Federal Reserve shot down speculation about the central bank slashing interest rates in the future. The Federal Reserve has been under a lot of pressure from the U.S. President Donald Trump and from investors to continue slashing interest rates.
Trump announced earlier this week that the Federal Reserve would slash the rates by about 100 basis points. POTUS even accused the Federal Reserve as being the only thing that was pulling down the U.S. economy.
"Doing great with China and other Trade Deals. The only problem we have is Jay Powell and the Fed,” Trump noted in one of his tweets.
Asian currencies remained in a tight range on Thursday as traders took a cautious stand in anticipation of the upcoming speech by Fed Chairman Jerome Powell on Friday at Jackson Hole. Investors have been eagerly waiting to hear about Powell's measures, especially after the treasury yield curve inverted, highlighting the increased risk of the country entering a recession.
I.G. Securities senior foreign-exchange strategist, Junichi Ishikawa, pointed out that yields currently support the dollar's performance for now, but things may change after Powell's speech. Central banks across the globe including the Federal Reserve, have been adjusting interest rates on account of the slowing global economy as a result of the overextended U.S.-China trade war.
A month ago, policymakers in the Federal Reserve had mixed feelings about cutting interest rates. Powell’s statement will reveal the direction that the Fed will take over the matter. Traders are also gearing up for the Brexit fallout, which will likely affect the markets.