GBP/USD has ticked lower in the Monday session. In North American trade, the pair is trading at 1.2869, down 0.03% on the day. On the release front, U.S. banks are closed for a holiday, and there are no U.S. or British indicators. British Prime Minister May is expected to speak as she tables a new Brexit proposal. On Tuesday, the U.K. releases wage growth and the budget deficit.
Last week’s political drama surrounding Brexit triggered sharp swings in the British pound, but GBP/USD ended the week with minor gains. Will the volatility continue this week? It was a rough week for Prime Minister May, as her Brexit withdrawal deal was dead on arrival in parliament. This was followed by a no-confidence vote which May narrowly survived. May must now table a new Brexit proposal and submit it to parliament on Monday. The new proposal is sure to be opposed by many lawmakers, and it’s unclear what happens if parliament rejects the revised agreement. Surprisingly, despite the political turmoil, the pound has posted five successive winning weeks. Will the upward trend continue?
Investors were greeted with weak data on Monday, as China released GDP numbers. The world’s second largest economy continues to expand, but GDP has been softening, pointing to an economic slowdown. China reported that GDP had slowed to 6.6% in 2018, marking its lowest level since 1990. GDP for the fourth quarter dipped to 6.4%, compared to 6.5% in the previous quarter. The soft GDP release comes on the heels of soft trade and manufacturing data. A decline in China could send the Japanese economy into recession, as the export and manufacturing sectors are heavily dependent on Chinese demand.
The Trump administration has threatened further tariffs if a deal is not reached by March 1, but a second round of negotiations between the sides is scheduled for the end of the month in Washington. Chinese officials will be under pressure to show more flexibility in the talks, in order to stem the economic bleeding.
