The British pound is almost unchanged in the Wednesday session. In North American trade, GBP/USD is trading at 1.3180, up 0.05% on the day. On the release front, British CBI Industrial Order Expectations sparkled, with a reading of 13 points. This easily beat the forecast of 1 point. On the release front, the U.S current account deficit narrowed to $124 billion, beating the forecast of $129 billion. As well, Existing Home Sales dropped to a 3-month low. The reading of 5.43 million was well shy of the estimate of 5.52 million. On Thursday, the BoE holds a policy meeting and is expected to maintain the benchmark rate at 0.50%. The U.S will release manufacturing and employment reports.
The worsening trade spat between the United States and China has boosted the U.S dollar, at the expense of the British pound and other major currencies. The pound is currently trading at its lowest level since early November. The most recent round of the trade spat between China and the U.S started on Friday, when the U.S announced a 25 percent tariff on $50 billion in Chinese goods. After China responded with an identical move on U.S. imports, President Trump has now threatened to impose 10 percent tariffs on some $200 billion in Chinese goods. Not surprisingly, China has threatened to retaliate against this latest move. Trump has vowed to take action on the $375 billion trade deficit that the U.S has with China, claiming that the latter is guilty of unfair trade practices. With the first of the U.S tariffs scheduled to take effect on July 6 and no signs that either side will blink first, the pound could continue to lose ground.
Negotiations between the European Union and the U.K are deadlocked, as the sides remain far apart on a number of key issues. The Europeans are exasperated by the lack of direction from the May government and are in no mood to show flexibility as Britain prepares to leave the club. Key outstanding issues remain the Irish border, the role of the European Court of Justice on EU citizens living in Britain, and the nature of trade relations between Britain and EU members in the post-Brexit era. Both sides are preparing for the possibility that a deal will not be reached by March 2019. The scenario of a ‘hard Brexit’ could sour investor sentiment towards the U.K and put pressure on the struggling British pound.
