Pound to US Dollar Exchange Rate Struggles to Find Support amid UK Uncertainty
The Pound Sterling to US Dollar (GBP/USD) exchange rate shed all of last week’s impressive gains this week. The latest US-China trade developments have notably improved the US Dollar (USD) outlook, however analysts warn this optimism could be temporary.
Last week saw GBP/USD climb over a cent from 1.2826 to 1.2935, but the pair has already shed all of those gains.
At the time of writing on Friday, GBP/USD is trending near the level of 1.2804, below last week’s opening levels. This is also around GBP/USD’s worst levels in three weeks, since mid-October.
Investors have been hesitant to buy the Pound (GBP) amid general election uncertainties, and the latest UK economic developments have been fairly bearish too. This has benefitted this week’s rebounding US Dollar.
Pound (GBP) Exchange Rates Struggle for Ground amid Election and Economic Jitters
After weeks of volatility and sharp movement on rapid developments on Brexit and UK politics, the Pound saw steadier movement in the past week.
Investors have been hesitant to make big moves on the British currency, amid anticipation for the 2019 General Election next month.
The ruling Conservative Party is currently expected to perform well in polls, but uncertainties over other potential outcomes are weighing on Sterling.
On top of this, yesterday saw some unexpectedly dovish news from the Bank of England (BoE).
Defying market expectations, a couple of policymakers voted to cut UK interest rates, and this unexpected split within the bank led to fresh BoE interest rate cut bets.
Thu Lan Nguyen, FX Strategist at Commerzbank, said on the BoE news:
‘This should at least limit the appreciation potential of the Pound over the medium to long term, but still the general direction of pound exchange rate will be determined by the general election,’
US Dollar (USD) Exchange Rates Gaining on Rising US-China Trade Hopes
The US Dollar saw a rebound in demand this week, as it advanced on hopes for an improving US trade outlook despite persisting Federal Reserve interest rate cut bets.
As the US economy has been impacted by the US-China trade war, the US Dollar has been one of the biggest benefactors from reports suggesting that a preliminary US-China trade war is close.
Hopes for an incoming US-China trade deal of some kind have been the primary cause of USD gains in recent sessions, but this also means that the higher US Dollar outlook depends on trade optimism persisting.
Reports yesterday said that some US officials were hesitant to sign a preliminary deal, unless China made more concessions on key issues. This is leaving markets anxious that relations could worsen again.
As this week’s US data has been mixed, trade hopes are the only thing notably boosting the US Dollar outlook at the moment.
Pound to US Dollar (GBP/USD) Exchange Rate Could Rebound if US-China Trade Relations Worsen
Amid expectations for a month more UK political uncertainty and higher Bank of England (BoE) interest rate cut bets, the Pound may lack the drive to advance much in the coming week.
As a result, the best chance GBP/USD has of advancing is if the US Dollar outlook is hit by another rise in US-China trade war tensions.
If US officials refuse to agree with China on rolling back more tariffs without further concessions from China, or if officials take more combative tones again, hopes for an imminent trade deal will slump and the US Dollar could shed much of its recent gains.
This could be the primary cause of GBP/USD movement next week, but investors are also anticipating upcoming data.
If next week’s slew of UK ecostats, including growth, inflation and retail figures, beat forecasts, it could soften Bank of England (BoE) interest rate cut bets.
Upcoming US inflation and retail stats could also influence the Pound to US Dollar (GBP/USD) exchange rate, as they could cause Federal Reserve policy speculation.