Home » GBP » Pound to US Dollar Exchange Rate Outlook Clouded by Geopolitical Fears

Pound to US Dollar Exchange Rate Outlook Clouded by Geopolitical Fears

Pound to US Dollar Exchange Rate Gains Limited as Markets Cool from Days of Jitters

A sudden surge in US-Iran military tensions caused highly mixed Pound Sterling to US Dollar (GBP/USD) exchange rate movement in recent sessions, but the pair has been steadying today. The outlook is still dominated by geopolitical uncertainties, however.

Last week saw GBP/USD ultimately fail to sustain gains. The Pound (GBP) was sold on Brexit uncertainties, while the US Dollar (USD) benefitted from market safe haven demand.

GBP/USD ultimately closed last week at the level of 1.3073, after falling back from fortnight highs.

This week so far, GBP/USD gains have been smaller. The pair is still trending above the week’s opening levels however, in the region of 1.3118.

The Pound briefly benefitted from Brexit hopes today, but it may only be a matter of time until Brexit uncertainties in the outlook put fresh pressure on the British currency.

Pound (GBP) Exchange Rates Struggle to Hold Bigger Advances amid Brexit Uncertainties

Earlier this morning, the Pound saw a jump in demand. Investors hoped that the UK government’s Brexit plans would smoothly enter law before the end of the month and prevent a no-deal Brexit, as expected.

These Brexit hopes, combined with this week’s stronger than expected UK services and labour productivity results, boosted Pound support.

However, at the time of writing the Pound is struggling to hold its morning gains, trending a little lower again.

Investors are hesitant to keep buying the Pound, due to lingering concerns that a hard Brexit at the end of 2020 is still possible. UK Prime Minister Boris Johnson continues to insist that the transition process will not be delayed.

According to Phil McHugh, Chief Market Analyst at Currencies Direct:

‘With Johnson reluctant to pursue any more delays, there is a clear risk of the process resulting in a no-deal Brexit at the end of the year, the threat of which is likely to limit any upside in the Pound,’

US Dollar (USD) Exchange Rates Steadying as US-Iran Tensions Not Escalating as Feared

The US Dollar has seen mixed, jittery movement in recent sessions. This is in response to a sudden attack on a top ranked Iranian official by the US.

Analysts immediately feared that military action would escalate and worsen, with Iran expected to strongly retaliate. Concerns over how the US could be impacted by the clashes, combined with poor US data, weighed on the US Dollar at the beginning of the week.

However, markets have been cooling since yesterday and things even became a little more optimistic today.

Iran’s retaliation to the US strike has not been as severe as many analysts expected. An overnight strike from Iran on US forces in Iraq has even been perceived as more for show than an attempt at escalation.

This has helped the US Dollar to steady. Yesterday’s stronger than expected US non-manufacturing PMI from ISM also bolstered USD support.

Pound to US Dollar (GBP/USD) Exchange Rates Awaits Changes to Geopolitical Outlooks

The Pound outlook is currently being weighed by concerns of a hard Brexit at the end of the year. Meanwhile, the US Dollar outlook is currently hopeful that US-Iran tensions will not significantly worsen.

As a result, geopolitics are likely to remain a focus for the Pound to US Dollar (GBP/USD) exchange rate outlook. Any developments in these issues could cause notable currency movement.

Pound investors will be eagerly anticipating talks between UK and EU officials, as well as how UK Parliament handles the Brexit process through the end of the month.

The US Dollar, on the other hand, could be in for further gains if US-Iran tensions lighten even further, as geopolitical jitters would lighten.

Of course, escalation in tensions could cause fresh uncertainty to hit the USD outlook instead.

The US economic outlook will also be highly important for the Pound to US Dollar (GBP/USD) exchange rate, so markets are still highly anticipating Friday’s key US Non-Farm Payrolls report as well.