The British pound has resumed its upward movement to kick off the week. In Monday’s North American session, GBP/USD is trading at 1.3939, up 0.60% on the day. In economic news, there are no British or US events on Monday. On Tuesday, the UK releases Public Sector Net Borrowing, and the US will publish the Richmond Manufacturing Index.
The US government shutdown has entered its third day, and lawmakers are trying to find a solution, with a vote in Senate expected later on Monday. Without funding, many non-essential government services have been forced to shut down. Democrats and Republicans are now playing the ‘blame game’ and pointing fingers at who is responsible for the crisis. The Democrats refused to vote for the spending measure until a deal is hammered out over Daca, a program for children who are illegal immigrants that Trump has threatened to deport. On Sunday, Senate majority leader, Mitch McConnell suggested that he would allow a vote on immigration reform in February if Democrats agree to fund the government. With congressional elections looming, both parties will not want to anger voters, so we could see the crisis resolved this week.
The financial sector in the UK is expected to take a hit when Britain departs the European Union, and many foreign banks with operations in London are looking at setting up shop on the continent. The Bank of England is trying to help, and in December, the Bank said that it would exempt European bank branches in London from costly capital rules after Brexit, if the EU co-operated with the BoE. The BoE wants more clarity on Brexit, warning that foreign banks could accelerate their departure if there is no Brexit transition deal in place by the end of March. Given that the negotiations have not gone well until now, it appears overly optimistic to expect the sides to reach a transition deal in the next few weeks.
