Pound to US Dollar Exchange Rate Struggles as Safe Havens Remain Appealing
As safe haven currencies remain appealing, the Pound Sterling to US Dollar (GBP/USD) exchange rate has seen limited demand. While the Pound (GBP) is being supported by Brexit hopes, its gains are limited.
Last week’s movement was comparatively wider. GBP/USD opened last week at the level of 1.3150, and touched highs of 1.3292 and lows of 1.3109 before ultimately closing the week at the level of 1.3193.
The high of 1.3292 seen last week was the best level for GBP/USD in over two months, since the beginning of September.
This week so far, GBP/USD has been trending with an upside bias. However, it is struggling to sustain gains and at the time of writing is only trending modestly above the week’s opening levels.
Pound (GBP) Exchange Rates Limited as Brexit Uncertainty Persists
The Pound has seen more mixed movement since markets opened this week. The Pound is trending a little higher, buoyed by expectations that there will be a Brexit deal of some kind. However, gains are limited, as uncertainty persists.
While a Brexit deal of some kind is expected this month, concerns are rising that negotiations could once again go up to the wire, with an outcome only occurring at the last possible moment.
On top of this, analysts are speculating that the Pound could be in for huge losses if there turns out to be a no-deal Brexit after all. According to Lee Hardman, Analyst at MUFG, speaking to Bloomberg:
‘Upside from a bare-bones trade deal should be more limited, especially given the sharp deterioration that has taken place in UK fundamentals in response to the COVID shock,
Effective COVID vaccines could prove more important in determining if Pound gains can be sustained in 2021.’
US Dollar (USD) Exchange Rates Remain Appealing amid Safe Haven Demand
The US Dollar is a safe haven currency. It is often appealing in times of global uncertainty, with investors buying it in order to keep assets safe.
As a result, it has been a fairly popular currency to buy amid coronavirus and US political fears in recent months. These factors persist despite rising hopes for returns to normalcy in recent weeks.
This week, while hopes of a coronavirus vaccine are rising, fears over how the US will distribute such a thing are also causing concerns.
On top of this, markets are becoming more anxious about US President Donald Trump’s attempts to delay or block Joe Biden’s Presidential transition. According to Masafumi Yamamoto, Chief Forex Strategist at Mizuho:
‘The market reaction has been limited because it will take time to distribute the vaccine, and there is uncertainty about US politics,’
Pound to US Dollar (GBP/USD) Exchange Rate Could Still Climb on Brexit Deal
The US Dollar could remain appealing as a safe haven, as coronavirus and US political uncertainties have a decent chance of persisting throughout the winter.
However, the US Dollar’s biggest jump in demand would come if the Brexit process suddenly takes a turn for the worse.
If no-deal Brexit fears return, this would only further dampen then Pound’s appeal and boost safe haven demand.
On the other hand though, if there are optimistic Brexit developments in the coming days or weeks, the Pound outlook is likely to improve.
Brexit optimism would make it easier for the Pound to register and sustain fresh gains. Sterling would gain especially if upcoming data makes markets more optimistic that Britain has been weathering the coronavirus pandemic.
UK inflation rate data due tomorrow, and retail sales results due Friday, could both influence the Pound to US Dollar exchange rate outlook if they surprise.