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Stumbling DUP Negotiations and Brexit Talks Provide Weak GBP Exchange Rate Forecast

This week the GBP saw the trade with a very tight range against the US dollar and the Euro. This partly was down to the lack of UK fundamental data with only a speech from Bank of England governor Mark Carney of note. The current outlook for GBP is one of complete stagnation and the Pounds Exchange Rate Forecast is very much dependant on the conservatives for want of a better term getting their act together.

GBP Exchange Rate Forecast

To coalition or not to coalition?

With an agreement with the Democratic unionist party seemingly the only opportunity for Theresa May and the conservative party of saving further blushes they have been negotiating tirelessly pretty much since the UK general election. It would appear the current sticking point includes a guaranteed £2 BN investment.

The Democratic unionist party intend on using the £2BN pledge to improve Northern Irelands Heath care system and improve infrastructure. They are also apparently looking to the UK to scrap air passenger duty, potentially costing the UK tens of millions in revenues.

Bank of England’s Mark Carney’s Tuesday speech

As mentioned in the opening paragraph the main point of note was Mark Carney’s speech at Mansion House. The first public engagement in more than a month. The discussion was used to highlight some of the potential pitfalls of UK now formally entering Brexit negotiations. Carney’s underlying future hurdles included UK consumer spending, UK investment and the future of London Financial services.

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Mark Carney on interest rates

Carney was quick to dismiss a near term interest rate hike. Just a week after a minority of three MPC members voted for an interest rate rise.  Stating during the speech that:

“Now is not yet the time.”

Brexit negotiations

This week also saw the commencement of official Brexit negotiations. With the conservatives in the midst of attempting form a coalition with the DUP party the UK’s position now appears slightly less defined. Just a few months ago Theresa May voiced her vision from a place of power; expectant of a majority victory. This over the last few weeks has changed dramatically. With Theresa May’s leadership now in question and even potential replacements being muted.

Regardless, negotiations have begun; the first point of conversation the eligibility of EU citizen’s ability to remain in the UK. To which May had pledged the to protect the rights of 3.5 million residing in the UK and the 1.2million British living in the European union.

The terms included offering those who arrive in the UK from the EU the ability to work toward the same rights as UK citizens. The pledge conditional to clarification on terms from UK citizens living within the EU.

That initial offer was graciously acknowledged by the EU with Merkel saying that the offer:

‘’That was a good beginning, but -it was not a breakthrough’’.

The turmoil’s effects on GBP strength and exchange rate forecast

Incredibly GBP has remained relatively resistant trading between a range of 1.1308 and 1.1442. The majority of exchange rate volatility provoked by political wrangling’s and Bank of England sentiment rather than key fundamentals.

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The GBP/USD fared slightly better-overcoming pressure early to mid-week. The trading range resting between 1.2595 and 1.2810. Currently, cable sits at 1.2719.

Sterling exchange rate forecast

The current GBP exchange rate forecast remains hard to call. However, traders will without doubt view the conservative’s concession as a positive and potentially see this move as a swerve away from the hard line, HARD BREXIT stance. However, expect GBP to remain range bound until either a coalition breakthrough or EU co-operation is seen. Recent data has also been average to poor so fundamentals could also be lacking.

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