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British Pound Subdued as Pound Hugs 1.29

GBP/USD is unchanged in the Tuesday session. In North American trade, the pair is trading at 1.2886, down 0.06% on the day. On the release front, U.S manufacturing and consumer confidence data was stronger than expected. CB Consumer Confidence jumped to 133.4, crushing the estimate of 126.6 points. On Wednesday, the U.S publishes Preliminary GDP and Pending Home Sales.

With the negotiations over Brexit stalled, there is an increasing likelihood of a ‘no deal’ Brexit, which would mean that Britain would leave the EU next March without a new trade agreement in place. This scenario could have significant economic repercussions on the UK economy, which has been integrated into the EU economy for decades. The Bank of England will be expected to help guide the economy through Brexit. The current Governor of the BoE, Mark Carney, is scheduled to be replaced in June, 2019, only three months after Brexit. On Wednesday, a report surfaced that Carney has been asked to remain at the helm of the BoE for an additional year in order to provide continuity at the Bank after Brexit.

The Federal Reserve monetary policy has been one of gradual rate increases, as the U.S economy continues to expand. The Fed stance can be summed up as “proceed with caution”. Fed Chair Jerome Powell reiterated this position, with a dovish speech at the Jackson Hole Economic Symposium on Friday. However, the Fed has faced criticism about its current policy from both sides. Some analysts have argued that the Fed has been too aggressive, given weak inflation, while others say the Fed should tighten more quickly, due to the extremely tight labor market. Powell appeared to take a middle approach of raising rates, but slowly. The Fed has already raised rates twice this year, and a September hike is practically a given, with the CME Group estimating the odds of a hike at 96%. The odds of a December hike currently stand at 66%.

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