The Pound has regained some lost ground following positive comments from the incoming President-elect Donald Trump, who has promised to secure a trade deal with the UK at the earliest possible opportunity.
Pound to US Dollar exchange rates have recovered half a cent since the start of the trading session, but the real test for the UK begins tomorrow when Theresa May reveals her Brexit cards.
Pound to US Dollar exchange rates to dip below 1.20?
Given the Government’s wish to gain control of immigration its looking more likely that the UK will leave the customs union unless the EU folds on their tight rules around free movement of people. If Theresa May reveals such plans tomorrow the Pound could fall against most major currencies including the US Dollar and Euro, which are already testing the lows witnessed in October and November.
Furthermore May will look to invoke Article 50 in March, which could bring even further losses for Pound Sterling. The Chancellor Phillip Hammond has made clear that the UK will play hardball with the EU if negotiations are one sided, by cutting corporation tax to bring in inward investment.
But the UK faces a challenge against its remaining 27 members, who will all veto any such Brexit deal. A hard Brexit could result in the UK seeking WTO trade arrangements whilst it puts in place trade agreements. The concern here is that trade deals could take time to implement and could leave the UK in a void.
In the short term GBP/USD could have some way to fall, and given the timescale of events and the likely outcomes that could arise over the coming weeks, exchange rates of 1.10-1.15 could become the norm for 2017.