GBP/USD has posted moderate gains on Tuesday, erasing the losses which marked the Monday session. In North American trade, the pair is trading at 1.2830. On the release front, British Public Sector Net Borrowing posted a debt of GBP 4.4 billion, larger than the estimate of 2.6 billion. In the US, CB Consumer Confidence dropped to 120.3, missing the forecast of 123.7 points. There was better news from the housing and manufacturing sectors. New Home Sales rose to 621 thousand, well above the estimate of 590 thousand. As well, the Richmond Manufacturing Index came in at 20 points, above the forecast of 18 points.
On Monday, European leaders met in Brussels to discuss a united front in the Brexit negotiations. Britain wants any deal to include the financial sector, but the Europeans are working on a draft that would exclude the financial sector, it is governed by EU rules. There are also likely to be sharp disagreements over the size of Britain’s debt to the EU. For now, the British government is concentrating on the June election, but after that things could get nasty between the UK and the EU. If the Brexit talks run into trouble, that could spell bad news for the British pound.
President Trump will have to reach out to the Democrats in order to avoid a shutdown of the federal government on Saturday. Congress must pass a spending bill which will fund the government until October, but the bill requires the backing of 60 senators. This means that the Republicans (who control 52 seats) will need the support of 8 Democrats. This has led to bipartisan negotiations, and it’s reasonable to expect that these talks could go down to the wire, as both sides try to stick to their positions and try not to blink first. The last shutdown was in 2013, lasting 17 days. Another shutdown would be embarrassing for Trump, as it would start on his 100th day in office and would cast doubts on his ability to push his budget and tax plan through Congress.
