GBP/USD has edged higher in the Monday session. In North American trade, the pair is trading at 1.2761, up 0.28% on the day. On the release front, it’s a quiet start to the week. There are no British events on the schedule. The sole U.S. indicator, ISM Non-Manufacturing PMI, dropped to 57.6 in December, down from 60.7 in November. The reading points to strong expansion, but missed expectations. On Tuesday, the U.S. releases JOLTS Job Openings.
With Britain due to leave the European Union in less than 90 days, it’s still unclear if the sides will split with a withdrawal agreement in place. On Sunday, Prime Minister May reaffirmed that she would bring the withdrawal agreement to a vote in parliament next week. However, the deal will have a tough time passing in parliament, and the government has given no indication that it has a plan B if lawmakers reject the deal. The Europeans have insisted that they will not renegotiate a new agreement, so if the deal fails, a no-deal Brexit becomes a strong possibility. Such a scenario would have a negative effect on the British economy and send the pound lower.
Federal Reserve Chair Jerome Powell made a concentrated effort to ease the volatility in the markets on Thursday. The markets had dropped sharply after the Fed’s December rate statement, which was less dovish than expected, as the Fed said it would continue raising interest rates in 2019. Powell tempered this stance with a more cautious outlook over rate policy. He said that he was aware of the risks of a slowdown in the U.S. economy and that the Fed would be patient in its policy decisions. The Fed is currently forecasting two rate hikes next year, but some analysts have forecast a rate cut next year, with the U.S. economy expected to slow down, compared to its torrid pace in 2018.
