GBP/USD has posted considerable gains in Thursday trade. In the North American session, the pair is trading at 1.2766, up 0.46% on the day. Markets in the United States are closed for Thanksgiving, and there are no economic releases out of the U.K. or the United States. Prime Minister May is speaking in Parliament, as she tries to sell the Brexit withdrawal agreement to members of parliament.
Although there are no economic indicators on either side of the pond, the pound has shown plenty of movement on Thursday. The pound gained as much as 1 percent, following the leak of a 26-page political declaration, which Prime Minister May hopes to sign with EU leaders on Sunday in Brussels. The declaration reiterates a key cornerstone of the withdrawal agreement – Britain will remain in a customs union with the EU, if the thorny issue of the Irish border is not resolved by the end of the transition period. This stance is anathema to many pro-Brexit MPs, who argue that essentially Britain will be stuck in a customs union with the EU until the latter is satisfied that the Irish issue has been resolved. The withdrawal agreement will have to be approved by the British parliament, which promises to be a tough sell for an embattled Prime Minister May. With the Brexit clock ticking down towards the March deadline, we can expect more volatility from the British pound.
Investors will be catching their breath on the Thanksgiving holiday, after a tumultuous week on the stock markets. The meltdown on Tuesday has raised questions about the Federal Reserve’s monetary policy. The markets had expected the Fed to raise rates up to four times in 2019, but with more signs that the U.S. economy could slow in 2019, policymakers may ease up on the pace of rate hikes. The Federal Reserve remains on track to gradually raise rates in 2019, but the pace could be slower than anticipated just a few weeks ago. There’s no denying that the U.S economy is currently in great shape, with unemployment at historically low levels and the $1.5 trillion tax cut package boosting economic growth. However, the rosy picture could change next year. The U.S-China trade war is expected to take a bite out of U.S growth, and the stimulus from the tax cut will fade over time. Economic growth has been slowing, with third-quarter growth expected at 2.7%, down from 3.5% in the second quarter. A rate increase in December remains a strong possibility, with the odds of a rate hike standing at 76%.
