Update 16:32 BST 22/07/2019:
The Pound Sterling to US Dollar (GBP/USD) exchange rate performed a little better on Monday afternoon, but still trended below the week’s opening levels.
Demand for the US Dollar (USD) weakened as the Chicago Fed National Activity Index printed an unexpected contraction this afternoon.
This made it easier for a Brexit-battered Pound (GBP) to avoid deeper losses.
Pound to US Dollar Exchange Rate Recovery Short-Lived as Brexit Fears Persist
A surge in no-deal Brexit speculation and bets last week led to deepened volatility in the Pound Sterling to US Dollar (GBP/USD) exchange rate. The pair attempted to recover towards the end of the week, but it was unable to recover all its losses.
After opening last week at the level of 1.2576, GBP/USD spent most of the week trending lower. GBP/USD briefly touched on its lowest level in over two years in the middle of the week, 1.2387.
GBP/USD then recovered a good chunk of its losses in the second half of the week, but the pair still saw losses overall and closed the week at the level of 1.2503.
Brexit jitters continue to drag on the Pound (GBP) while the US Dollar (USD) is supported by Federal Reserve speculation today. At the time of writing, GBP/USD is trending closely to the level of 1.2480.
Pound (GBP) Exchange Rates Pressured by Lingering Brexit Fears
Concerns over how the Brexit process will unfold under Britain’s next Prime Minister dominated the Pound’s movement last week, and continue to dampen the British currency’s outlook this week so far.
Brexiteer Boris Johnson is widely expected to be announced as the winner of the Conservative Party leadership contest within the coming days, and he has recently shown no signs of tempering his harder stance on Brexit.
Johnson continues to appear to prefer a no-deal outcome to the process than another delay, and no-deal Brexit fears are dominating the Sterling outlook.
According to Neil Wilson from Markets.com, investors will be watching to see if Johnson’s rhetoric changes at all assuming he wins the contest and becomes Prime Minister.
‘Watch for a harder tone on Brexit and the very clear message that Oct 31st is a hard date. As previously argued, the reality of parliamentary arithmetic may see this soften in due course. Pound traders will be watching the new PM like hawks over the coming days.’
US Dollar (USD) Exchange Rates Edge Higher as Fed Rate Cut Speculation Lightens Slightly
The US Dollar has seen much weaker performance over the past month, amid speculation that the Federal Reserve may be even more aggressively dovish on US monetary policy than previously expected.
Due to some weak US data, as well as some more dovish than expected comments from Federal Reserve policymakers, investors had speculated that the Fed may even cut US interest rates by as much as 50 basis points in its upcoming July policy decision.
Still, speculation for a deep 50 basis point rate cut as soon as next week was tempered by comments from a Federal Reserve spokesman at the end of last week.
The spokesman said that New York Fed President John Williams was not referring to potential policy actions when he made his more dovish comments last week. Analysts generally expect at 25 basis point rate cut from the Fed next week.
Pound to US Dollar (GBP/USD) Exchange Rate Focused on Brexit and Central Bank Bets
The coming week’s developments could be highly influential for the Pound to US Dollar (GBP/USD) exchange rate outlook if they cause any shifts in Brexit or Central Bank bets.
With Brexiteer Boris Johnson expected to become Britain’s next Prime Minister by the end of the week, all eyes will be on Johnson’s rhetoric regarding how the Brexit process may proceed in the coming months.
If Johnson’s tone on Brexit softens at all when he becomes Prime Minister, the Pound outlook may recover somewhat.
Investors are much more likely to react to these potential developments than the confidence and factory data due from the Confederation of British Industry (CBI) in the coming days.
The US Dollar (USD), on the other hand, will be driven by bets on whether the Federal Reserve is expected to cut US interest rates by 25 or 50 basis points during its policy decision next week.
US data due in the coming days, such as US home sales, PMI projections, goods orders and of course the growth rate projection due on Friday, could be particularly influential for Fed rate cut bets and the Pound to US Dollar (GBP/USD) exchange rate outlook.