The Pound has made extraordinary losses against the US Dollar at the start of the week, with investors concluding that ‘Hard Brexit’ is inevitable.
On the week of the US Presidential inauguration, the US Dollar has opened strongly against the Pound, thanks to optimism about future Federal Reserve interest rate decisions.
Historic Losses for GBP USD as Investors Price-in No UK Single Market Access
The Pound has suffered notably on negative market speculation recently, with the most damaging words to hit the UK’s economic outlook being ‘Hard Brexit’.
Investors have forecast that Prime Minister Theresa May will be putting the final nail in the coffin of single market access in an upcoming speech, which sent the GBP USD exchange rate down to 1.19 on the morning of January 16th.
Although the soon-to-be US President Donald Trump has been hinting about a rapid UK-US trade deal to replace UK-EU trading, this has failed to generate much support as trading arrangements generally take years and require countless months of wrangling between national trade officials.
For the US Dollar, support has recently come from Federal Reserve officials, who have been hawkish about economic conditions under President Trump.
These policymakers have repeatedly looked to 3 interest rate hikes in 2017, which has been based on the assumption that the President will follow through with his promises of heavy infrastructure spending.
Pound Sterling Predictions: Signs of Future UK Trade Links could Restore Demand for Battered Pound
While the future looks increasingly uncertain for the UK in a post-Brexit world, there is one source of light that may shine down on the UK after it severs ties with the continent.
This concerns trade deals; it is widely accepted that the UK will be unable to negotiate or sign up to trade deals during the two-year exit process, following the triggering of Article 50.
Despite this fact, however, the Pound could still be bolstered if some compromise is reached with the EU and the UK is able to have non-EU trade agreements ‘ready to go’ before it leaves the EU and the single market.
Such a safety net would likely restore some degree of confidence in the Pound; a much needed factor at the present time.
US Dollar Outlook: Further Fed Support for Rate Hikes may Firm USD Demand
For the US Dollar, one of the most consistent sources of support in the future is likely to be the Federal Reserve.
Via speeches made by its officials, investors can get a picture on how the Fed might vote in upcoming interest rate decisions and at a time of global economic uncertainty, consistency in opinion has been a strong unifying force for US Dollar investors.
If the Fed continues to issue hawkish statements as it has been previously, the US Dollar is expected to firm due to an implied early Fed interest rate hike.
Recent Interbank GBP USD Exchange Rates
At the time of writing, the Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.20 and the US Dollar Pound (USD GBP) exchange rate was trending in the region of 0.83.
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