GBP/USD has recorded considerable gains on Wednesday, continuing the upward movement seen on Tuesday. In the North American session, the pair is trading at 1.3200, up 0.42% on the day. On the release front, British data disappointed. GDP grew by 0.7%. In the U.S, PPI and Core PPI both gained 0.2%, matching the estimate. These inflation readings were the strongest gains since June. On Thursday, the U.S will release CPI reports and unemployment claims.
British numbers were mixed on Wednesday, but the pound has pushed higher, breaking above the 1.32 level for the first time since September 26. The economy expanded 0.7% for the three months to August, compared to the three months to May. This was music to the ears of investors who are constantly concerned about the negative ramifications of Brexit on the economy. The news was not as good from manufacturing production, which posted a second consecutive loss of 0.2%, short of the estimate of 0.1%.
The mood seems more positive in London and Brussels, as there are reports of progress in the Brexit negotiations. With Britain set to sail away from the EU in March 2019, both sides are sounding more conciliatory, after months of bickering. Still, there are plenty of issues to solve, with the issue of the Irish border one of the thorniest problems. Prime Minister May’s government depends on the tiny DUP party for its survival. The leaders of the DUP, Arlene Foster, met with the EU’s chief negotiator, Michel Barnier on Tuesday. Foster is adamantly opposed to any regulatory barriers between Northern Ireland and the rest of the U.K. However, the EU wants to see Northern Ireland remain in a customs union with the continent, which would require some type of border check between Northern Ireland and the rest of the U.K. Foster has gone so far as to threaten to vote against the budget later this month if May agrees to the EU demands.
Will Britain and the European Union reach an agreement over Brexit? Despite months of gloom and fears of a hard Brexit, there is renewed optimism in London and Brussels that a deal can be reached before the March 2019 deadline. There are reports that the sides have made progress on a range of issues, including the Irish border and continued EU access to London’s clearinghouses. EU leaders will hold a crucial meeting on October 17, with Brexit one of the key items on the agenda. If there are tangible signs of progress on Brexit ahead of the summit, the pound could move higher.
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