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Pound Sterling to US Dollar Exchange Rate Hits 2-Year-Worst as Brexit Fear Throttles Markets

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Pound to US Dollar Exchange Rate Pushed Lower by Recovering US Dollar

Towards the end of last week, the Pound Sterling to US Dollar (GBP/USD) exchange rate rebounded from its worst levels due to fresh weakness in the US Dollar (USD). However, as Sterling (GBP) has slumped this week, a slightly stronger US Dollar has climbed.

Last week saw GBP/USD ultimately slide from 1.2700 to 1.2575. This pair’s movement has been even sharper this week so far, with GBP/USD having already lost over a cent.

At the time of writing this morning, GBP/USD was trending near a low of 1.2387. This was the worst level for GBP/USD since February 2017 – almost two and a half years ago.

Fresh comments from the candidates to be Britain’s next Prime Minister worsened no-deal Brexit fears and hit Sterling, as the US Dollar benefitted from yesterday’s US data.

Pound (GBP) Exchange Rates Throttled by Fresh Slew of Brexit Fears

It’s the final week of the UK Conservative Party leadership contest, and both candidates are ramping up tougher stances on Brexit in an effort to win the backing of supporters.

Frontrunner Boris Johnson and his opponent Jeremy Hunt both indicated that they would not accept a Brexit deal with the EU that used the controversial Irish backstop.

As the EU has repeatedly indicated that its backstop must be part of the plan to avoid a hard border in Ireland, these statements worsened fears that Britain’s next Prime Minister could take the nation towards a no-deal Brexit.

On top of this, speculation rose that Johnson could plan to put Parliament on hold in October if he becomes Prime Minister – which would prevent efforts to block his no-deal Brexit plans.

If no-deal Brexit fears continue to rise, UK economic activity could be negatively affected as well as businesses remain hesitant make investments.

The worsening no-deal Brexit fears hitting both political and economic uncertainties in the short to long term caused many factors to throttle the Pound lower.

US Dollar (USD) Exchange Rates Find Supported by Surprising Rise in US Retail Sales

Towards the end of last week, investors sold the US Dollar as bets rose that the Federal Reserve could take a more aggressively dovish stance on US monetary policy.

However, the US Dollar’s selloff appears to have cooled already this week. Investors are buying the US currency back in profit taking, but yesterday it also saw a fresh boost in demand thanks to some stronger than expected US data.

A slew of most of the week’s most influential US ecostats were published during Tuesday’s American session.

While many of the day’s stats, including import and export prices, as well as industrial and manufacturing production, fell short of expectations in some prints, key US retail sales stats were stronger than forecast.

Monthly retail sales came in at 0.4% rather than the expected 0.1%, though the previous figure was revised down slightly from 0.5% to 0.4%. These stronger than expected US retail figures kept the US Dollar recovering against Sterling.

Pound to US Dollar (GBP/USD) Exchange Rate Awaits Political Developments

As the UK Conservative Party leadership contest will end next week, speculation and developments regarding UK politics and the Brexit process are likely to be the primary driver of the Pound to US Dollar (GBP/USD) exchange rate in the coming sessions.

If contest frontrunner Boris Johnson continues to ramp up indications that he could attempt to force a no-deal Brexit, then the Pound may be in for even further weakness.

Any signs that positions on Brexit could soften would have the opposite effect, but for now no-deal Brexit fears are gradually rising.

As for the US Dollar, it is likely to be driven by upcoming US data that could influence Federal Reserve interest rate cut bets.

This afternoon will see the publication of US housing starts and building permits data from June, followed on Friday by Michigan University consumer sentiment data.

If these stats disappoint, they could cause Fed interest rate cut speculation to flare up and the Pound to US Dollar (GBP/USD) exchange rate would be able to more easily recover some of this week’s losses.