The British pound has reversed directions on Friday session and posted gains. In North American trade, GBP/USD is trading at 1.2845, up 0.26% on the day. On the release front, the number of mortgages approved by major UK banks dropped to 39.6 thousand, shy of the estimate of 40.6 thousand. The U.S releases durable good reports for July. Core durable goods are forecast to rise to 0.5%, while durable goods are expected to downturn, with an estimate of -0.7%. Federal Reserve Chair Jerome Powell will speak at the economic symposium at Jackson Hole.
Brexit continues to hover over the British economy like a dark cloud. With only seven months to go before the U.K takes the plunge and leaves the EU, both sides remain entrenched in their negotiating positions, as the scenario of a ‘hard Brexit’ is becoming a greater possibility with each passing day. Prime Minister May has to deal not only with hard-nosed European leaders, but with deep divisions over Brexit within her Conservative party. The British economy has performed fairly well, but big business is exasperated by the lack of clarity or direction from the government over Brexit. The uncertainty over the post-Brexit era has taken a toll on the British pound, which has shed 8.3% since the start of April. Earlier in August, the pound dropped below the 1.27 line, its lowest level since April 2017. Unless the EU and UK show remarkable flexibility and reach an agreement, traders can expect further headwinds for the struggling pound.
With a lack of data for the markets to digest the week, the Federal Reserve is in the spotlight. On Wednesday, the Fed released the minutes from its August meeting. The minutes noted that the U.S economy remains strong and hinted that the Fed would raise rates in September. However, policymakers expressed concern about escalating trade tensions, saying that a global trade war could hurt the U.S economy. On Friday, Fed Chair Powell will address the Jackson Hole symposium. With the heads of the ECB and Bank of Japan conspicuously absent, Powell’s speech will be the main event of the meeting. With a September rate hike practically a given, investors will be looking for Powell to discuss trade tensions, particularly with China, as well as the lack of wage growth despite a tight labor market. Earlier this week, Powell said that the Federal Reserve would maintain its independence and would not be influenced by President Trump’s criticism of the Fed’s plans to continue raising interest rates.