Pound to US Dollar Exchange Rate Climbs on Hopes for Softer Brexit
Mixed market sentiment over the coronavirus pandemic has led to Pound Sterling to US Dollar (GBP/USD) exchange rate volatility this week. There is potential for the pair’s outlook to improved notably in the coming weeks depending on how Brexit unfolds.
After opening this week at the level of 1.3154, GBP/USD trended with a largely upside bias. In the middle of the week, GBP/USD even touched on a two month high of 1.3292.
However, after touching that high GBP/USD tumbled again. GBP/USD shed all of the week’s gains and ended up touching a weekly low of 1.3107.
At the time of writing on Friday, GBP/USD is trending just above the week’s opening levels again. Safe haven demand could remain in focus for the US Dollar (USD), while the Pound’s (GBP) focus shifts towards Brexit.
Pound (GBP) Exchange Rates Buoyed as UK Political Developments Boost Soft Brexit Hopes
Part of the reason for the Pound’s tumble across the board yesterday was market concerns over the stability of UK government. Reportedly, there has been considerable in-fighting within Prime Minister Boris Johnson’s government.
Communications director Lee Cain has quit amid the controversy, and he will reportedly be followed by advisor Dominic Cummings by Christmas.
However, this news actually boosted the Pound’s appeal today. This is because Cummings has been seen as a key part of the government’s hard-line approach to Brexit, so his departure is being seen as making the possibility of a soft Brexit more likely.
According to Lee Hardman, Currency Analyst at MUFG:
‘Certainly with Cummings leaving, as he’s seen as one of the key people behind Brexit, it suggests Johnson could look at more compromise, which will be seen as Pound positive. That’s likely how the market is taking that news,’
US Dollar (USD) Exchange Rates Resilient on Safe Haven Demand
The US Dollar has had a volatile week, as markets digest developments in the global coronavirus pandemic and US politics.
Initially, the US Dollar tumbled as investors sold safe havens amid optimism over coronavirus vaccine news and a clear US 2020 Presidential Election result.
However, safe havens have remained appealing as uncertainties persist. A coronavirus vaccine is not expected until next year, meaning the US economy will have to deal with the pandemic for at least a few more months.
Cases of the coronavirus Covid19 are seeing record surges in the US in recent sessions, which is making markets nervous.
Investors are also anxious about US politics. US President Donald Trump is still refusing to concede his US election loss, which is causing uncertainty to rise.
Pound to US Dollar (GBP/USD) Exchange Rate Could Surge on Brexit Deal
While uncertainty over the long-lasting Brexit process persists, there is rising expectation in markets that the UK and EU will reach some kind of deal this month.
Analysts predict negotiators will miss next week’s soft-deadline of the 15th of November, but speculation is rising that a deal will still be presented next week.
If next week’s Brexit developments impress investors, the Pound outlook could surge. Fears of a possible no-deal Brexit will persist otherwise, and they continue to put a lot of pressure on the Pound outlook.
Data is less likely to be influential as Brexit comes into focus for Sterling again. The US Dollar, on the other hand, will be influenced by the market sentiment and safe haven demand.
If global coronavirus fears or US political uncertainties intensify, investors are more likely to want to hold onto safe havens.
Key US data due next week, such as retail sales and production stats, could also influence the Pound to US Dollar exchange rate if they show how well the US economy is weathering the coronavirus pandemic.