- Pound treads water as Brexit negotiations continue…
- Trump’s tax reforms set to go through
- Guidance for USD buyers and sellers
By Ricky Nelson
Pound treads water as Brexit negotiations continue…
Sterling has broadly respected recent trading ranges over the last few weeks as traders reacted to positive momentum regarding Brexit in the UK and some good news for President Trump in the US, as his tax plan looks set to pass through the House. The Pound had been in a very narrow trading range as negotiations between the UK and the European Union went down to the wire, before some last minute changes to language in the text allowed the UK, EU and Ireland to all claim that negotiations had gone their way. The first phase of talks has now been concluded and the rights of EU citizens in Britain, the exit divorce bill and avoiding a hard border with Northern Ireland and the Irish Republic have been agreed. Markets reacted positively to the news and the Pound was briefly trading at the top of its current range at around 1.3550. However, this euphoria was short-lived, as it became apparent that Phase Two will be just as large a minefield. The UK government has yet to agree upon what type of trade deal it wants, whereas the EU has made it clear that there are limited options. Negotiations are likely to go to the wire again and it seems likely that the UK will again blink first, unless we are to walk headfirst into a no deal, disastrous and disorderly Brexit. The Pound is unlikely to rally meaningfully in 2018.
The UK is fundamentally still on shaky ground right now, with inflation still outpacing wage growth and the employment rate falling for the first time since 2012. Retail sales surged last month, however, that was more likely due to discounts being offered and consumers making purchases ahead of the festive season.
Trump’s tax reforms set to go through
Over in the US, President Trump is likely to finally pass a meaningful piece of legislation after almost a year in office. Unless we see a huge U-turn from the House, President Trump is set to deliver on a major tax reform package before Christmas in what will be the most sweeping tax cut bill in 30 years. Ideally, the Bill will supercharge economic growth, give further impetus to the booming stock market, revive manufacturing in Trump’s country and hopefully increase his political capital before the mid-terms in November. The benefits may take many years to filter through to the man on the street, so this is a high stakes gamble as Trump looks to make sure that he is not fired in 2020.
Politics, rather than economics, will continue to drive the near term direction of the Pound; and Brexit negotiations will be front and centre, with the UK needing an outline agreement by the end of March. I would expect the Pound’s fortunes to ebb and flow, determined by how well the talks progress.
Guidance for USD buyers
The 1.3500 area is definitely a region of chart resistance and orders should be placed ahead of here. In the short term, there is support at 1.3300 and longer term at 1.3000.
Guidance for USD sellers
The Pound is fairly buoyant right now, although there is no reason to panic unless it breaks 1.3550 on a weekly basis. Otherwise, aim for 1.3300 or hope for a break and a retest of 1.3000.
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