The British pound has posted sharp losses in the Friday session. Currently, GBP/USD is trading at 1.3767, down 1.08% on the day. On the release front, there are key events on both sides of the pond. British Preliminary GDP for the first quarter posted a weak gain of 0.1% in the first quarter, missing the estimate of 0.3%. Later in the day, BoE Governor Mark Carney speaks at an event in London.We’ll also get a look at economic performance in the US, with the release of Advance GDP for the first quarter. The estimate stands at 2.0%. The US will also release UoM Consumer Sentiment, which is expected to drop to 98.0 points.
The streaking dollar has steamrolled the pound, which has fallen to its lowest level since late February. The pound has endured a miserable two weeks, losing 3.3% since April 16. Aside from the disappointing British GDP report, the dollar has received a strong boost from higher yields on US bonds, which hit 4-year highs this week. On Wednesday, 10-year US Treasury notes climbed above the symbolic level of 3.0%, which led to investors snapping up bonds at the expense of equities. As oil prices have been moving higher, this has led to expectations of higher inflation, which in turn, has increased sentiment that the Federal Reserve will increase rates four times in 2018, rather than three hikes. This has made the US dollar more attractive to investors.
One of the most thorny issues surrounding Brexit is the Northern Ireland border. Ireland is a member of the European Union and would like to avoid a hard border with the north. However, once Britain leaves the UK, there will have to be some type of border controls between Ireland and Northern Ireland. So far, no satisfactory solution has been found. On Wednesday, Brexit Secretary David Davis said that a solution isn’t needed until the end of the transition period, which concludes in January 2021, since the UK will remain in the single market until that date. What happens after that? Davis would like to see the UK reach a comprehensive trade deal with the EU and a frictionless border, but Brussels may not be interested, with European leaders still smarting over Britain’s exit. Any scenario, called the “backstop plan”, envisions some time of “harmonization” of trade rules between Northern Ireland and the EU. However, the May government has continually expressed opposition to such a plan, so a solution will likely remain elusive until the clock forces the sides to show more flexibility.
