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Pound Sterling US Dollar (GBP/USD) Exchange Rate Retreats from Five-Month High

Pound US Dollar (GBP/USD) Exchange Rate Slides Ahead of EU Crunch Summit

The Pound Sterling US Dollar (GBP/USD) exchange rate slumped and the pairing is currently trading around $1.2717.

Sterling pulled back from five-month highs against the Dollar on Wednesday after signs the UK was closing in on a deal with the EU buoyed GBP on Tuesday.

Traders nervously await last-ditch efforts to see whether the UK can secure a Brexit deal with the European Union ahead of the EU leaders’ summit on Thursday.

Tuesday’s reports suggested that a Brexit deal was within reach, although comments from No 10 stated there was ‘more work still to do’.

The Prime Minister is expected to update his cabinet later today.

Commenting on the latest Brexit developments, foreign exchange strategist at Daiwa Securities, Yukio Ishizuki stated:

‘Even if the two sides can agree on something, it is unclear if they can stick with the exit deadline.

‘Whether Britain’s parliament will approve whatever has been agreed is another big uncertainty. Sterling had a good run-up, but some investors are lightening their positions.’

US Dollar (USD) Rises as China Threatens Countermeasures over US Hong Kong Support

The US Dollar rose against the Pound on Wednesday as the safe-haven Dollar benefitted as markets turned their attention to US-China trade developments.

Fresh strains over Hong Kong were ignited as the US House of Representatives passed a bill, the ‘Hong Kong Human Rights and Democracy Act’ that supported protestors.

China hit back, and Ministry of Foreign Affairs spokesperson, Geng Shuang said:

‘If the relevant bill is finally passed into law, not only will it hurt Chinese interests and China-US relations, but also seriously damage US interests.

‘Regarding the wrong decision of the US, the Chinese side will have to enact effective countermeasures, firmly safeguard Chinese sovereignty, security and development interests.’

Added to this, on Tuesday the International Monetary Fund (IMF) announced the US-China trade war will cause global growth to fall to its slowest pace since the 2008-2009 financial crisis.

IMF chief economist, Gita Gopinath noted that global growth would be 0.5% lower, teetering on the edge of recession unless there was a nearly simultaneous easing of monetary policy, and also noted:

‘The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods.’

Pound (GBP) Slumps on Further Signs the Economy is Weakening

Meanwhile, inflation data revealed on Wednesday morning showed that the UK’s headline inflation remained below the Bank of England’s 2% target.

The Pound slumped as data showed inflation was stuck at the lowest level since December 2016 for the second consecutive month in September.

Tuesday’s disappointing UK unemployment data also added to signs the UK economy is weakening in the run-up to Brexit.

Commenting on this, TUC General Secretary, Frances O’Grady said:

‘Low inflation alongside falling employment is a worrying sign the economy is weakening.

‘The government needs an urgent plan to protect growth by speeding up higher public sector investment.

‘And MPs must stop the prime minister from forcing through the hardest possible Brexit, which would harm jobs, rights and livelihoods.’

Pound Dollar Outlook: Will US Retail Sales Buoy USD?

Looking ahead to this afternoon, the US Dollar (USD) could continue rising against the Pound (GBP) following the release of September’s retail sales.

If US retail sales rise higher than expected it is likely the ‘Greenback’ will extend gains.

Meanwhile, Brexit is likely to be the main catalyst for movement in Sterling exchange rates.

If reports reveal that the UK has moved further from securing a Brexit deal with the EU, the Pound US Dollar (GBP/USD) exchange rate is likely to slump.