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Pound slumps on government defeat.
Published on 01.03.2017 22:02

The British pound has dropped sharply today against it’s US counterpart on heightened expectations of a rate hike from the US Federal Reserve this month, as well as a vote by the house of lords to amend the bill for Britain to leave the European union,

At 9.31pm (GMT) the British currency was trading at $1,2300 down from $1.2410 in yesterday’s trading.

In comments late yesterday, San Francisco Fed President John Williams  said an interest-rate hike “is on the table for serious consideration” in March.

“The aim is to keep the economic expansion on sound footing, not too hot, not too cold, that can be sustained for as long as possible,” he added.

New York Fed President William Dudley also weighed in on the subject by noting that the US economy is moving forward and as each day goes by the case for a rate hike becomes stronger,

“We’re very much on the trajectory that we said — that we thought we’d be on and we said if we were on that trajectory, we’re going to gradually remove accommodation,” he added, so, put it all together, I think the case for monetary policy tightening has become a lot more compelling,” he said.

Also, affecting the pound was the shock defeat for the government by the House of Lords in a vote 358 to 256 in favour of an amendment from the government to secure the rights of EU citizens in the UK.

Although they didn’t demand immediate action the decision requires the Prime minister to guarantee the rights of EU citizens living in the UK within 3 months of triggering article 50, the process to leave the EU.

The decision now needs to go back to the house of commons for approval and if rejected, is like to cause a period of instability in the British economy as well as put further pressure on the pound.

 

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Andrew Masters

Analyst

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