- GBP USD Exchange Rate Hovers Around 1.3450 – Pair appears to be settling
- Pound (GBP) Flounders Amid British Uncertainty – Tory leadership contest in full swing
- US Dollar (USD) Remains Sturdy – Investors hope US economy is largely unharmed
- Forecast: GBP USD to Move on BoE Speech – Governor Mark Carney speaks today
The GBP USD exchange rate fluctuated on Thursday after recovering slightly from its Brexit declines during Tuesday and Wednesday’s trade sessions. Investors sold the US Dollar from its highs while they purchased the Pound from its lowest levels.
At the time of writing, the Pound to US Dollar exchange rate slipped from its relief rally as it trended in the region of 1.3435. Is has largely failed to remain above 1.35 this week.
Pound (GBP) Struggles to Continue Advances as Investors Settle
After mixed attempts at recovery throughout the week thus far, following the GBP USD plummet to an over 30-year low after it was announced that Britain would be Brexiting from the European Union, the Pound has stabilised slightly. While GBP/USD has recovered from its worst levels of 1.3146, sentiment has remained mixed and its recovery weak.
The Pound has paused around this level as markets have been given little new to react to, and they continue to readjust their positions on the Brexit-affected currency. The BBC reports;
‘The past few days have seen huge swings on the world’s financial markets as traders and investors struggled to assess the impact of the UK’s vote to leave the European Union.
After two days of heavy falls following the vote, shares spent two days recovering, and on Wednesday, the FTSE 100 ended above the level it had closed at last Thursday.
However, the FTSE 250 index – which contains more UK-focused companies – still remains about 8% lower from its pre-referendum level, and fell 0.5% on Thursday morning.’
Rather than focusing on valuing the Pound, markets instead focused on the latest headlines relating to Britain’s ongoing political uncertainties.
Thursday morning saw the race for the Conservative Prime Minister’s seat hitting full stride, as Liam Fox, Theresa May, Andrea Leadsom and Michael Gove joined Stephen Crabb in the competition.
Markets were slightly shocked by the news that previous favourite-to-win ‘Leave’ camp head Boris Johnson had shockingly pulled out of the race, mere minutes after beginning what many assumed would be his candidacy speech.
US Dollar (USD) Sturdy as Investors Await US News
The US Dollar appeared to be settling during Thursday’s European session after dropping for a couple of days from its highest levels. Investors were also wary due to speculation that the Federal Reserve’s money tightening had been affected by the Brexit announcement.
With Federal Reserve Chairwoman Janet Yellen silent since last Friday’s news that Britain would be leaving the EU, many investors have grown anxious to hear that the Fed’s plans have potentially changed since last week.
There is wide speculation amongst economists that the Brexit vote illustrates exactly why Yellen has previously mentioned global risks so heavily when taking her slow and steady approach to rate hikes.
Bloomberg writes;
‘Internationalists are expected to continue to hold sway at the U.S. central bank. Traders in federal funds futures have almost entirely priced out a rate increase this year in the aftermath of the UK referendum, and see a reduction as a small possibility as soon as September. Fed officials at their June 14-15 meeting projected two rate increases in 2016, according to their median estimate.
“We’ve been hit by these different sorts of shocks,” said Jay Bryson, global economist at Wells Fargo in Charlotte, North Carolina. Whether international events continue to top the agenda “depends on what we see going forward — and these things by definition are sort of un-forecastable.”’
Regardless, the US Dollar remained sturdy, especially as markets began to calm since Tuesday. Some analysts have suggested that the Brexit’s effects had not met the worst forecasts, giving hope to US economic health.
GBP USD Exchange Rate Forecast: BoE Speech Expected
In what could lead to the Pound’s first news-inspired surge of movement since Tuesday, Bank of England (BoE) Governor Mark Carney is expected to deliver a speech on Thursday afternoon.
Markets are fixated on how the central bank most directly affected by the Brexit news will handle the potential economic fallout going forward.
If Carney indicates that the key UK interest rate will be cut in the near future, it would likely cause the Pound to US Dollar exchange rate to plummet as Sterling falls across the board.
However, if Carney adopts a hawkish wait-and-see attitude, it could spur investors to believe that markets were not hit as hard by the Brexit news as some had previously believed.
Markets are also likely to keep an eye out for the possibility of a speech from Federal Reserve Chairwoman Janet Yellen, though Fed concerns may also be eased if Carney is hawkish.
Lastly, the Conservative party’s five candidates to replace David Cameron as Britain’s Prime Minister will be rolling out their campaigns in the coming days. The result is not expected until the 9th of September, and the current frontrunners are Theresa May and Michael Gove.
At the time of writing, the GBP USD exchange rate trended in the region of 1.3435, while the USD GBP exchange rate traded around levels of 0.7445.
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