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China-US Trade Relations Improve – Pound US Dollar (GBP/USD) Exchange Rate Forecast Darkens

US Dollar Currency Forecast

Pound US Dollar (GBP/USD) Exchange Rate Outlook Negative as Brexit Negotiations Remain at Impasse

The Pound US Dollar (GBP/USD) exchange rate continued its fall on Monday, limited by ongoing concerns regarding the Brexit negotiation process and last week’s back-and-forth on the UK’s post-Brexit position in the customs union.

The Telegraph reported last week that Ministers had reluctantly accepted the idea of the UK’s extended period of membership within the customs union whilst the technology needed to monitor the border without imposing permanent structures is built.

UK Prime Minister Theresa May seemed to reject this notion, however, asserting that no reversal of policy had taken place, whilst another source stated outright that ‘there was no proposal discussed or agreed that would see us staying in the customs union beyond the implementation period’.

This kerfuffle left Sterling trading rather poorly, with investors largely put off by the ongoing uncertainty and fleeing to the currently rallying US Dollar.

Looking ahead, Brexit talks will likely continue to play a role, but this week’s highly significant UK inflation report (due on Wednesday) could steal the spotlight – with investors hoping that an accelerated rise will prompt the Bank of England (BoE) to raise interest rates in June.

Improving US –China Trade Relations Bolster US Dollar (USD) Exchange Rates

The US and China seemed to have reached the beginnings of an accord on trade, with both nations engaging in something of a cease fire whilst they negotiate a more reciprocal relationship.

Indeed, a joint Sino-US statement has claimed that China will now better support US employment and general growth by increasing the purchase of US goods and services.

US Treasury Secretary Steve Mnuchin stated:

‘We’re putting the trade war on hold. We have agreed to put the tariffs on hold’.

This announcement of a détente occurred after Chinese officials visited Washington last week, with the Whitehouse announcing that China will engage in measures to ‘substantially reduce the United States trade deficit in goods’ and to ‘work on expanding trade and protecting intellectual property’.

This served to ease investor anxieties that the US economy might soon suffer from retaliatory sanctions, shifting the focus once more to the current hawkishness of the US Federal Reserve and sending the ‘Greenback’ soaring.

US Fed Deemed Hawkish – What can we expect for the Pound US Dollar (GBP/USD) Exchange Rate?

Ultimately, the current strength of the US Dollar (USD) is liable to continue as long as the US Fed is regarded as the most hawkish option out of the world’s major central banks.

In this respect, investors will be paying close attention to this week’s release of the US Federal Open Market Committee (FOMC) minutes, with many hoping that the central bank will give clear forward guidance for a rate hike as soon as June.

This is all the more likely in light of the recent raft of upbeat US data releases, including the 2.5% rise in US consumer prices in April and the ever-tightening labour market.