Pound to US Dollar Exchange Rate Slides as Investors Await UK and Fed Developments
As Brexit uncertainties dragged the Pound (GBP) last week, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been unable to hold a recovery since yesterday. Yesterday’s rebound on a Brexit delay was short-lived, with the pair tumbling again today.
Last week saw GBP/USD tumble around a cent and a half, from the level of 1.2978 to 1.2826 throughout the week. Near the beginning of the week, GBP/USD briefly touched on a 5-month-best of 1.3008.
This week so far though, GBP/USD movement has been comparatively narrow and mixed. While GBP/USD advanced on yesterday’s Brexit delay news, the pair has since fluctuated, briefly falling below the week’s opening levels before trending higher again at the time of writing.
With the next steps of Brexit uncertain, and the Federal Reserve’s key October policy decision taking place tomorrow, the Pound to US Dollar exchange rate could be in for big movement in the coming sessions.
Pound (GBP) Exchange Rates Slide on Brexit and Election Uncertainties
While yesterday saw the EU finally confirm that it would extend the Brexit deadline until the 31st of January, the Pound’s (GBP) benefit from this news was limited.
This is because it is still highly uncertain how Brexit will proceed over the coming three months.
Britain’s government is looking to hold a snap general election in the December that could get the ruling Conservative Party the mandate it needs to pass its Brexit plans.
The opposition Labour Party blocked the government’s attempt to secure Brexit yesterday, amid demands that it will not agree to an election unless the government takes a potential no-deal outcome off the table.
Today however, there is fresh speculation that Labour will agree to a December election.
A general election would lead to fresh political uncertainty and Pound weakness, but the Pound is also weak amid uncertainty over how Brexit will unfold in the coming months, as the process could be stuck in political deadlock once again.
US Dollar (USD) Exchange Rates Sturdy despite Fed and Trade Jitters
This week could be a big one for the US Dollar (USD), but market anxiety for Federal Reserve news and US-China trade relations is not doing enough to keep the US currency down versus a weak Pound.
Markets expect the Federal Reserve will take a more dovish tone in its October policy decision tomorrow, as US data continues to disappoint investors and point towards a US economic slowdown.
Yesterday’s US wholesale inventories stats unexpectedly contracted at -0.3%, while the Dallas Fed manufacturing index contracted at -5.1.
Despite this and US-China trade hopes bolstering demand for more trade-correlated currencies though, the US Dollar is seeing relatively firm demand today.
Hopes that US economic activity would improve on better US-China trade relations, as well as weakness in US Dollar rivals like the Pound and Euro (EUR), are supporting the US Dollar today.
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Jittery as December Election Expected
While Britain’s opposition Labour Party blocked the first attempt at an election yesterday, it has since indicated that it is willing to hold a December election following the EU’s confirmation of a Brexit delay.
With a December general election now looking likely, the Pound is likely to remain under pressure over the next month as political uncertainty is expected to rise.
If the government’s Conservative Party performs well in polls, hopes of a relatively soft Brexit will rise and support Sterling.
On the other hand though, the possibility of the Brexit process seeing a total shift in direction under another party would leave the Pound outlook much weaker.
As for the US Dollar, markets are currently highly anticipating the Federal Reserve news and key US data due in the coming sessions.
If the Fed takes a more dovish stance on the US economy than expected or upcoming US data is highly concerning, US recession fears could rise and the Pound to US Dollar (GBP/USD) exchange rate could recover more easily.