Pound to US Dollar Exchange Rate Hit as US Dollar Strengthens on Safe Haven Demand
While not as appealing as safer rivals like the Japanese Yen (JPY), the US Dollar (USD) saw stronger demand on Tuesday due to market trade jitters and this pushed the Pound Sterling to US Dollar (GBP/USD) exchange rate even lower.
Sterling (GBP) trade had already been weaker due to market anxiety ahead of Thursday’s anticipated Bank of England (BoE) decision, but GBP/USD was pushed to its worst level since November 2017 on Tuesday morning.
After opening this week at the level of 1.3272, GBP/USD has largely trended below the week’s opening levels. At the time of writing, GBP/USD trended near a seven-month-low of 1.3203.
While the US Dollar was briefly shaken by further signs of protectionism in US trade and the perceived chances of a US-China trade war, the US currency ultimately benefitted as investors sought out safe havens.
The US Dollar is a currency that traders perceive as safe to buy during times of market uncertainty and turmoil, leaving it stronger in situations like this.
Pound (GBP) Exchange Rates Unappealing Ahead of Bank of England (BoE) Decision
Amid a lack of notable UK data published this week so far, and Britain’s economic and Brexit outlooks looking murky once again, the British currency has been unappealing.
The Pound trended near its worst 2018 levels versus the US Dollar ahead of the Bank of England’s (BoE) policy decision on Thursday, with investors hesitant to buy Sterling unless the BoE takes an optimistic stance on Britain’s economy.
Last week’s UK inflation and wages results fell short of expectations, and the British Chambers of Commerce (BCC) forecast on Monday that UK growth would only reach 1.3% in 2018.
This has dampened market expectations that Britain’s economy will be strong enough to sustain tighter monetary policy from the Bank of England before the end of the year and BoE interest rate hike bets have fallen.
Essentially, Sterling is unlikely to see a driven move lower or higher until after Thursday’s Bank of England decision.
US Dollar (USD) Exchange Rates Supported Despite US Trade Concerns
Global trade war jitters worsened again overnight, as US President Donald Trump ramped up protectionist rhetoric against China and once again China indicated it would retaliate.
Signs that both the US and China would continue to ramp up trade tariffs almost tit-for-tat left investors concerned that a full blown trade war was becoming increasingly likely.
According to Mike van Dulken from Accendo Markets:
‘Global sentiment is on the back foot amid signs that neither side will back down, potentially taking global commerce a step closer to an unwelcome trade war.’
While this news was concerning for the US economic outlook, the US Dollar (USD) benefitted against most rivals due to its status as a safe haven currency.
The US Dollar often benefits in times of broad market uncertainty, so as investors became anxious about the possibility of a US-China trade war the US Dollar actually strengthened.
Pound to US Dollar (GBP/USD) Forecast: Trade Jitters and Central Bank News in Focus
While some US housing data could influence the Pound to US Dollar (GBP/USD) exchange rate in the coming days, the exchange rate’s movement could be limited unless there are major political or central bank developments.
For example, if trade tensions between the US and China finally ease somewhat, the US Dollar may stop benefitting from safe haven demand and could slip.
It would remain supported by the strong US economic outlook, but may fall from its best levels versus the Pound.
Sterling investors, of course, are highly anticipating June’s Bank of England (BoE) policy decision on Thursday.
If the bank indicates that Britain’s economic outlook is strong despite slipping inflation, BoE interest rate hikes may rise and Sterling would recover from its worst levels.
On the other hand though, a cautious or dovish tone from the BoE would cause BoE rate hike bets to slump and the Pound to US Dollar (GBP/USD) exchange rate could end the week near its worst levels.
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