British Pound Retreats Against Major Counterparts as Brexit Talks Start

Close-up of the UK pound noteThe British pound declined against most of other major currencies on Monday to begin the week on a negative note following the commencement of the Brexit negotiations. The British currency came under more pressure versus the US dollar after a Federal Reserve official offered a hawkish outlook for US interest rates.

Secretary of State for Exiting the European Union David Davis met European Chief Negotiator for Brexit Michel Barnier in Brussels, Belgium today to start the formal Brexit negotiations. Davis hopes that the talks will result in a deal that ends the nation’s four decades of membership in the European Union with as little damage as possible to the UK economy.

The negotiations began amidst growing doubts regarding political stability in the United Kingdom. UK Prime Minister Theresa May had called for a snap general election in an attempt to score more support from the House of Commons for her stance on Brexit. However, her Conservative Party lost the parliamentary majority when the election took place on June 8.

The election defeat forced May to form a minority government and rethink her position on Brexit. Ahead of the election, the prime minister said that the United Kingdom will demand full control over immigration laws and a trade agreement with the European Union, or else it would leave without a deal. Following the defeat, May promised to include a wider range of views in the Brexit negotiations, which reflected on Davis’s conciliatory tone in today’s meeting as he emphasized the importance of reaching a deal with Europe.

For their part, Europeans insisted that a trade agreement will not be discussed before making progress on some key issues, including the UK financial obligations to the European Union and the EU citizens’ legal position in the UK. The European Union appears to be firm and clear on the terms of the agreement it could be willing to accept, which might leave UK negotiators little room to move within.

Comments from Federal Reserve of New York President William Dudley further supported the US dollar against the British pound today. Dudley said that the US central bank should continue tightening its monetary policy as current inflation and unemployment rates reflect strong economy. The Federal Reserve raised interest rates last week, with investors expecting a 40.4% chance of another hike in December.

GBP/USD traded at 1.2736 as of 21:05 GMT on Monday from 1.2728 at 19:00 GMT, the pair’s lowest level since June 15. GBP/USD began the day at 1.2777. EUR/GBP was at 0.8752 from 0.8770 at 15:05 GMT, the pair’s strongest level today. EUR/GBP started trading today at 0.8766.

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