Pound to US Dollar Exchange Rate Pushed by Higher Trade Sentiment
When markets opened yesterday, investors bought the Pound Sterling to US Dollar (GBP/USD) exchange rate as investors became more hopeful about next month’s UK general election. However, it slipped back from overnight highs today.
Following last week’s slide from 1.2902 to 1.2833, GBP/USD briefly recovered almost all of last week’s losses yesterday, touching 1.2909 at its highest point.
The pair has been sliding back this morning though, and currently trends near the level of 1.2872. A lack of reasons to keep the Pound (GBP) near its highs, as well as slightly stronger demand for the US Dollar (USD), were among the reasons the pair struggled to hold its highs.
Looking forward, UK election uncertainty could limit Pound gains in the coming weeks, while US Dollar movement will be driven by trade news and upcoming US data.
Pound (GBP) Exchange Rates Lack Drive to Keep Climbing
Yesterday saw investors buying the Pound against many major rivals, including the US Dollar and Euro (EUR), due to fresh market hopes that next month’s UK General Election will have a positive outcome for the Brexit process.
Due to strong polling for the ruling Conservative Party, as well as Prime Minister Boris Johnson’s pledge to put his Brexit plan to Parliament before Christmas, investors became more hopeful that a relatively soft Brexit outcome is becoming more likely.
However, while these election hopes boosted the Pound the British currency’s potential for gains remains limited as a Conservative majority has already been largely priced in already.
This is limiting the potential for further Pound gains, and the British currency was unable to hold its best levels today as uncertainties remained. Some polls continue to indicate that the Conservative Party lead over Labour could narrow further.
US Dollar (USD) Exchange Rates Bolstered as US-China Trade Hopes Rise
Demand for the US Dollar has been fairly solid since the beginning of the week, as markets are generally optimistic that US-China trade relations remain decent.
Despite being a safe haven currency, the US Dollar has benefitted from US-China trade hopes due to the trade war’s impact on the US economic health.
Reports suggesting weakening relations over the past week have been denied by officials. With both US and China officials showing positivity around the chances of a ‘phase one’ deal being possible soon, this news continued to support the US Dollar.
Yesterday, analysts at Morgan Stanley said:
‘The Chinese government pledging to increase penalties on intellectual property rights violations and lower criminal punishment thresholds for IP thefts will potentially help in US-China trade talks,’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Focused on Trade and US Data
Major US data will be published in the coming sessions, but the Pound to US Dollar (GBP/USD) exchange rate will continue to be driven by US-China trade relations as well.
If the US and China appear to be closing in on reaching a ‘phase one’ trade deal, then the US Dollar is likely to see stronger gains. However, if US-China relations appear to worsen instead, GBP/USD to advance more easily.
Upcoming US data, on the other hand, is likely to influence Federal Reserve policy speculation and USD movement if it surprises.
US goods and wholesale inventories data will be published this afternoon. Tomorrow’s slew, including US growth rate, goods orders and Personal Consumption Expenditure (PCE) inflation stats, could be even more influential for the US Dollar.
As for the Pound, a lack of upcoming UK data means that any reaction to UK political developments is more likely to drive the Pound to US Dollar (GBP/USD) exchange rate.