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Boris Johnson Recoil Limited as US Dollar to Pound Exchange Rate Nears Best Levels Once Again

US Dollar to Pound Exchange Rate Climbs Following Weaker Mid-Week Performance

In the middle of the week, the Pound (GBP) saw a brief rebound as investors reacted to the formation of Boris Johnson’s new UK government, but ultimately the US Dollar to Pound Sterling (USD/GBP) exchange rate is on track to end the week much higher.

Since opening this week at the level of 0.7998, USD/GBP has trended with an upside bias as the US Dollar (USD) benefitted from no-deal Brexit fears hitting the Pound.

USD/GBP briefly hit a weekly high of 0.8050 before Sterling’s mid-week rebound, but at the time of writing on Friday the pair was rising again and trended near the level of 0.8045.

The US Dollar’s outlook is mixed however. US Dollar investors are highly anticipating US growth data due later today, which could influence bets for the Federal Reserve policy decision next week.

US Dollar (USD) Exchange Rates Steady as Investors Await Key Growth Report

This week’s US data has been too mixed to keep the US Dollar near its best levels, as investors are hesitant to move too much on the currency ahead of next week’s anticipated Federal Reserve policy decision.

Federal Reserve interest rate cut bets have been rising in recent weeks, and analysts generally predict that there could be three or more rate cuts over the next year.

However, markets have been speculating whether the bank will cut US rates by the usual 25 basis points or by an aggressive 50 basis points at next week’s decision. This has been the primary cause of US Dollar movement lately.

Analysts believe a 25 basis point cut is more likely, but as this week’s US data has been largely mixed, investors remain uncertain as to how aggressively dovish the bank will be.

Yesterday’s US durable goods orders data beat expectations at 2.0%, but the wholesale inventories data slowed to just 0.2%. For now, investors are eagerly awaiting this afternoon’s US growth rate report.

Pound (GBP) Exchange Rates Weaken as Boris Rebound Runs Out of Steam

In the middle of the week, investors bought the Brexit embattled Pound back from its cheapest levels in profit-taking.

The rebound was partially driven by relief that the long Conservative Party leadership contest had finally come to an end. The formation of a new government from new Prime Minister Boris Johnson did cause uncertainty to soften slightly.

However, analysts predicted the Pound’s recovery would be limited, as a Johnson government is perceived as making a no-deal Brexit more likely.

Brexit fears worsened again overnight and caused the Pound to slip on Friday.

EU officials indicated that they had no interest in renegotiating the UK-EU withdrawal agreement with Johnson’s government. European Commission President Jean-Claude Juncker said to Johnson that it was the only agreement possible for EC guidelines.

US Dollar to Pound (USD/GBP) Exchange Rate Investors Await US Growth Report for Fed Bets

The US Dollar to Pound (USD/GBP) exchange rate is on track to end this week higher, but the pair could still see a notable shift in movement before markets close for the week.

While Sterling movement will be driven by potential UK political and Brexit developments, US Dollar investors are highly anticipating this afternoon’s US growth rate report.

US Gross Domestic Product (GDP) projections for Q2 will be published during the American session, and are predicted to have slowed from 3.1% to 1.8%.

If US growth comes in even lower than expected, it could worsen concerns that the Federal Reserve could take an even more aggressively dovish stance on US monetary policy.

A shocking slowdown in US growth could even cause bets of a 50 basis point rate cut next week to rise and would cause USD/GBP to shed some of this week’s gains.

On the other hand, if US growth comes in well above forecasts some of the US Dollar’s outlook would rise, bearishness would lighten, and the US Dollar to Pound (USD/GBP) exchange rate could end the week even higher.