The British pound continues to have a quiet week and is showing little movement in the Thursday session. In North American trade, GBP/USD is trading at 1.3367, down 0.06% on the day. On the release front, British Public Sector Net Borrowing increased to GBP 8.1 billion, below the estimate of GBP 8.3 billion. In the US, Final GDP looked sharp in the third quarter, as the gain of 3.2% was just shy of the estimate of 3.3%. Other US data was a mix. The Philly Fed Manufacturing Index jumped to 26.2, above the forecast of 21.5 points. Unemployment Claims disappointed, climbing to 245 thousand. This was much higher than the estimate of 232 thousand. Friday will be busy on both sides of the pond, so traders should be prepared for some movement from GBP/USD. The UK releases Current Account and Final GDP, while there are three key events in the US – Core Durable Goods, New Home Sales and UoM Consumer Sentiment.
Negotiations between the European Union and Britain over Brexit have been arduous from the start, but the talks are finally shifting to trade relations, as sufficient progress has been made on other issues, such as the size of Britain’s divorce bill and the Northern Ireland border. What will a trade relationship between Britain and the European Union look like? That remains unclear, but it’s no secret that the two sides have very different views of a future trade agreement. For example, will financial services be covered by a new trade deal? BoE Governor Mark Carney waded into the thorny issue on Wednesday, in testimony before a parliamentary committee. Carney took issue with comments by Michel Barnier, the EU’s senior negotiator. Barnier said Britain’s financial services would not be included in a Brexit deal, as no free trade agreements have included financial services. Carney disputed Barnier’s reasoning, saying that British financial system is “effectively the banker for Europe” and there was no reason why the UK and the EU couldn’t maintain some type of free trade in financial services. Clearly, the sides remain far apart on the “end phase” of what a Brexit agreement will look like, and both Britain and the EU will have to show some flexibility in order to hammer out an agreement by March 2019, when Britain leaves the club.
Tax reform was a major theme for President Trump during the election campaign. Just one year in office, Trump and fellow Republicans are celebrating passage of their landmark tax reform legislation, marking Trump’s first major legislative victory in office. On Wednesday, the House of Representatives voted to pass the tax reform bill, after it narrowly passed in the Senate, by a vote of 51-48. Trump is expected to sign the bill into law next week. The tax legislation marks the first major overhaul of the US tax code in 30 years, and reduces corporate taxes from 35% to 21%. After failing to overturn Obamacare, the Republicans finally scored a big win. The Republicans have promised significant tax relief to the middle class, but polls show that the American public remains skeptical. With congressional elections next November, tax reform promises to be a key issue, and could determine which party will control Congress in 2018.
