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Pound Exchange Rate Softens, IMF Warns of Two-Year Recession for No-Deal Brexit

April 9, 2019 11:05 am | Modified April 9, 2019 4:14 pm
AUD, Brexit, EUR, GBP, USD | BY Lauren Bessent

The British Pound has been trending higher against the US Dollar (GBP/USD) in Tuesday’s session, while trading lower against the Australian Dollar (GBP/AUD). It’s crunch week for Brexit, meaning there could be some swift Sterling movements in the following sessions, as Theresa May attempts to find some way around the Brexit impasse by seeking an extension.

Update: IMF Warn of UK Recession on No-Deal Brexit, and a Gloomy Global Outlook

The International Monetary Fund (IMF) has said that the UK risks a two-year recession should a no-deal Brexit take place. However, the global economic outlook isn’t so rosy either. IMF Chief Economist Gita Gopinath said: ‘While the global economy continues to grow at a reasonable rate and a global recession is not in the baseline projections, there are many downside risks. Tensions in trade policy could flare up again and play out in other areas, such as the auto industry, with large disruptions to global supply chains. Growth in systemic economies such as the euro area and China may surprise on the downside, and the risks surrounding Brexit remain heightened.’

US Threatens Tariffs – US Dollar Exchange Rate Weakness Persists

Meanwhile, in the US, President Donald Trump has threatened $11 billion of tariffs on EU goods. Chief Market Analyst at Markets.com Neil Wilson commented:

‘We are now back to where we were before the Juncker visit to Washington – there is a real risk of a tit-for-tat trade battle between the EU and US, and therefore ought to weigh on risk. Meanwhile, we are still waiting for a breakthrough between the US and China – despite warm words, so far nothing has materialised.’

These developments could be bad for the relationship between the two nations, as well as potentially having an impact on the global economy. While at the moment there are no threats on auto imports, if that did get added to the list, the Euro could come under pressure. At present, non-military aircraft is the top item to face tariffs, cheese, seafood, jams, and olive oil would also face charges too.

Today, the US NFIB Small Business Optimism index will be out, followed by the US JOLTS Job Openings stat. The US Dollar has experienced some weakness after Durable Goods Orders data disappointed in yesterday’s session. The final reading for February came in at -1.6% on the year. Looking ahead, Wednesday will be an interesting day for the US Dollar exchange rate with the release of the highly influential US inflation data and the Federal Open Market Committee’s (FOMC) meeting minutes. Any hints on the path of monetary policy could impact the USD exchange rate.

Australian Dollar Exchange Rate Supported by Home Loans and Commodity Prices

Meanwhile, the Australian Dollar has been supported by a rise in commodity prices, as well as some positive economic data. The February Australian Home Loans reading came in at +0.8% on the month, higher than the 0.5% forecast and the -1.2% previous number. Wednesday will see the release of the Westpac Consumer Confidence number for April, while the Consumer Inflation Expectation will be out on Thursday.

British Pound Exchange Rate Awaiting Brexit Direction

In Britain, UK economic data didn’t have a positive start to the week when the British Retail Consortium’s (BRC) Like-For-Like Sales came in at -1.1% in March, despite forecasts for -0.8%. The previous month’s reading had noted a smaller contraction of -0.1%.

Wednesday will be a significant day for UK economic data when Trade Balance, Industrial Production, Manufacturing Production, Construction Output, and Monthly Gross Domestic Product (GDP) growth stats are revealed. However, it’s expected that the British Pound’s main driver will be Brexit as the UK attempts to negotiate an extension with the EU. An extension could be Pound positive, but the terms to which an extension will be granted it still unknown. Chief EU negotiator Michel Barnier has stated that the EU may not be willing to offer a long extension to Article 50 unless Theresa May suggests a new way to tackle Brexit. The emergency EU leaders’ summit will take place on Wednesday, and so the British Pound exchange rate could be more sensitive during this time.

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