Pound to US Dollar Exchange Rates on Track to Gain This Week despite Brexit Jitters
Despite a late-week rise in demand for the US Dollar (USD), the Pound Sterling to US Dollar (GBP/USD) exchange rate is still on track to have gained notably throughout the week as the US Dollar was sold off from its best levels.
The US Dollar’s long-lasting bullish rally saw GBP/USD briefly touch a yearly low of 1.2671 last week and close the week at the level of 1.2747.
This week though, GBP/USD has put in solid gains, briefly touching a fortnight high of 1.2928 on Wednesday before slipping. At the time of writing on Friday, GBP/USD trended in the region of 1.2831.
As most of this week’s Pound to US Dollar exchange rate movement has been driven by the US Dollar, the upcoming Central Bank symposium at Jackson Hole could cause some late-week movement in the exchange rate before markets close.
Pound (GBP) Exchange Rates Fail to Hold Best Levels as ‘No Deal’ Brexit Fears Resurface
While Sterling (GBP) has spent most of the week climbing due to US Dollar weakness, the British currency was undermined by Brexit developments on Thursday which knocked the currency from its highs.
The already unappealing Pound was sold when the UK government revealed its plans for how a potential ‘no deal’ Brexit could unfold – in the event that a UK-EU post-Brexit deal is not reached.
UK Brexit Secretary Dominic Raab’s plan was met with broad concern in markets, as it indicated the UK government felt a ‘no deal’ Brexit was becoming a more real possibility.
According to Robert Bell, partner at Bryan Cave Leighton Paisner:
‘This latest set of guidance cannot conceal that in the event of a ‘no-deal’ Brexit, this country and its economy will be sailing into uncharted waters with unpredictable results,
So, far from reassuring the business community, this guidance is likely to heighten anxiety about the government’s conduct of the exit negotiations, and provoke real doubts as to whether the government is as close to a successful deal as they contend.’
US Dollar (USD) Exchange Rate Selloffs Ends on Fed Hopes and US-China Trade Tariffs
Investors had spent most of this week selling the US Dollar due to concerns about the Federal Reserve’s independence, as well political jitters regarding the strength of US President Donald Trump’s government.
However, as investors anticipated late-week developments from the Federal Reserve and political concerns took a backseat for now, the US Dollar found some stronger support.
On Wednesday evening, the US Dollar selloff slowed as the Federal Reserve’s latest meeting minutes pointed towards a September interest rate hike. Analysts also believe a December interest rate hike is likely.
Then on Thursday, another round of US-China trade tariffs took effect, bolstering market demand for the US Dollar as a ‘safe haven’ currency.
Investors also firmed in the US Dollar ahead of the anticipated Jackson Hole symposium, at which there could be more Federal Reserve developments.
Pound to US Dollar (GBP/USD) Forecast: Federal Reserve and Brexit Developments in Focus
For now, the Pound to US Dollar (GBP/USD) exchange rate is on track to end the week almost a cent above the week’s opening levels, but there could still be a shift in direction in the pair before markets close.
As the Central Bank symposium at Jackson Hole, Wyoming, begins on Friday, investors are anxious for potential developments from the Federal Reserve.
In particular, investors are eager to see if US President Donald Trump’s criticisms on Fed interest rate hikes could have any effect on Federal Reserve monetary policy or independence.
If the Fed shows any dovish signs, it could signal the beginning of a new bearish selloff for the US Dollar which could continue into next week.
As not much key UK data will be published next week besides the UK consumer confidence report on Friday, Sterling is likely to spend most of the week reacting to potential Brexit developments.
If there are stronger signs from UK or EU officials that a UK-EU Brexit deal is still likely to be reached in the coming months, the Pound could see stronger demand. Sterling is unlikely to see much sustained strength unless the Brexit outlook improves.
As for US data, next week’s US Gross Domestic Product (GDP) growth results and Personal Consumption Expenditure (PCE) inflation data could influence the Pound to US Dollar (GBP/USD) exchange rate too.
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