Pound to US Dollar Exchange Rate Dragged by Brexit Jitters and Trade Fears
While the Pound Sterling to US Dollar (GBP/USD) exchange rate surged on Brexit hopes last week, the pair has been gradually tumbling as those hopes unwind this week, and as global trade concerns bolster market demand for safe haven currencies like the US Dollar (USD).
Last week’s bullish movement saw GBP/USD open the week at the level of 1.2920 and surge over two cents, closing the week at the level of 1.3173.
This was also very close to Monday morning’s monthly high of 1.3176. Since then though, GBP/USD has shed over half of last week’s gains and keeps slipping today, currently trending close to the level of 1.2990.
As UK politicians turn their attention away from finding a solution to Brexit towards focusing on potentially contentious EU elections, the US benefits from market aversion to risk-taking and pushes the Pound to US Dollar exchange rate lower.
There is still a chance that GBP/USD investors will be surprised by US inflation data before markets close for the week however.
Pound (GBP) Exchange Rates Tumble as Cross-Party Brexit Talks Perceived as Futile
The Pound has spent most of this week shedding much of the impressive gains it saw last week.
While the Pound benefitted from hopes that cross-party Brexit talks could lead to a soft Brexit deal being reached, that means it saw weakness when those hopes faded and were replaced with doubts.
As the UK government has confirmed Britain will be taking part in this month’s EU elections, the talks are not expected to resolve much as officials increasingly focus on the elections.
According to David Madden, Analyst from CMC Markets yesterday:
‘It was confirmed the talks between the Conservative Party and the Labour Party will continue today, but traders aren’t holding out much hope. The Pound lost ground against the US Dollar and the Euro.’
Talks are still ongoing for now, but doubts of a resolution continue to rise.
US Dollar (USD) Exchange Rates Firm as US-China Trade Jitters Come Back into Focus
For the past few months, investors have been quietly anticipating some kind of deal on trade between the US and China to be reached, and markets have been slowly finding trade-correlated investments more appealing again.
However, with another deadline in talks approaching and both the US and China taking more combative stances again this week, hopes for a trade deal are quickly slipping.
Investors have been more panicked in recent sessions as US President Donald Trump criticised China for causing difficulties in trade negotiations, and as the US plans for fresh trade tariffs to be implemented at the end of the week.
According to Paul Donovan, Chief Economist at UBS Wealth Management, uncertainty will be bad for markets even though talks appear unlikely to completely collapse:
‘Markets are not pricing in a collapse in trade talks – that would mean a far bigger equity loss. Instead, markets seem to assume a temporary tax increase [higher tariffs] with continued negotiations.
Economically, the longer there is uncertainty the greater the economic damage (regardless of whether there is a successful conclusion to the talks).’
These trade tensions have made investors eager to buy safe havens like the US Dollar, though concerns about how the US economy will be impacted are limiting the currency’s strength.
Pound to US Dollar (GBP/USD) Exchange Rate Investors Anticipate Trade Developments and US Data
With analysts doubting there will be any solid Brexit developments within the next few weeks, and UK political uncertainty expected to worsen as the EU elections approach, the Pound to US Dollar (GBP/USD) exchange rate will be driven by US news.
A delegation of high level Chinese officials are travelling to the US today for the latest round of trade negotiations, and there is some lingering hope that a deal of some kind can be reached before fresh tariffs are implemented at the end of the week.
However, if no deal is reached the US Dollar could see stronger gains on market safe haven demand.
Any signs that talks could collapse completely would leave the US Dollar even stronger, though its strength would be limited by concerns of trade weakness hitting the US economy.
On top of trade news, the US Dollar outlook will be driven by US data towards the end of the week.
US wholesale inventories data will be published this afternoon, and tomorrow’s US inflation rate report could influence Federal Reserve interest rate hike bets and the Pound to US Dollar (GBP/USD) exchange rate if it surprises investors.