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Pound to US Dollar Exchange Rate Tumbles on Brexit and US-China Trade Outlooks

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Pound to US Dollar Exchange Rate Falls Back Following Last Week’s Rally

A lack of optimistic UK news didn’t stop the Pound Sterling to US Dollar (GBP/USD) exchange rate from advancing last week, but the Pound’s (GBP) recent bullishness appears to have run out of steam since markets opened today.

Due to strength in both the Pound and US Dollar (USD), GBP/USD saw mixed movement last week.

The pair opened the week at the level of 1.2501 and ultimately ended the week around a third of a cent lower at 1.2471. This was after GBP/USD briefly touched on a two month best of 1.2571 on Friday.

At the time of writing, GBP/USD was tumbling lower still and trended close to the level of 1.2432.

Concerns about the possibility of a no-deal Brexit are rising once again today, and cautious optimism about US-China trade talks are helping the US Dollar to benefit from Sterling weakness.

Pound (GBP) Exchange Rates Tumble as Boris Johnson Dampens Hopes for Imminent Brexit Breakthrough

The Pound strengthened for much of last week, as speculation that the UK government could still reach a new Brexit deal kept the British currency buoyed despite poor domestic ecostats.

However, hopes for a softer Brexit ran out of steam this week, as last week’s reports of continued doubts over Ireland’s border issue finally weighed on market optimism.

Officials from Ireland said that a deal was still quite a ways away, and UK Prime Minister Boris Johnson reportedly cautioned on Monday not to expect an imminent breakthrough on Brexit during upcoming talks.

Johnson is set to meet EU leaders in New York at the United Nations Assembly this week, and Brexit discussions will be held, but it appears as though a deal is still a ways away.

EU officials continued to maintain that talks were making no progress. According to one official:

‘We don’t even know how to read what they are doing. If they are genuinely trying to open a negotiation, it would take them another 6-9 months to get to something. Or is it just tactical, and aimed at avoiding the blame?’

US Dollar (USD) Exchange Rates Benefit as US-China Trade Talks Resume

The US Dollar saw stronger demand last week, as the currency benefitted from a combination of safe haven demand and global trade hopes.

The US Dollar is a currency perceived as safe in times of global uncertainty, so escalating tensions between Saudi Arabia and Iran bolstered demand for the currency last week.

Hopes that a fresh round of trade negotiations between the US and China were productive helped to boost US Dollar demand this morning.

While the news supported trade sentiment, expectations that US-China trade relations will directly impact the US economy meant that the perceived progress was an optimistic result for US Dollar investors.

Accordding to Shane Oliver, Chief Economist at AMP Capital in Sydney, this optimism may be short-lived however:

‘These things have a habit of escalating and de-escalating and then escalating again…it is a bit finely balanced at the moment,’

Pound to US Dollar (GBP/USD) Exchange Rate Remains Focused on Geopolitics

Amid a lack of major UK or US ecostats due for publication until later in the week, the Pound to US Dollar (GBP/USD) exchange rate’s movement will remain focused on developments in Brexit and geopolitics for now.

Any perceived developments in Brexit are likely to be highly influential. In particular, upcoming UK-EU talks, as well as the decision of Britain’s Supreme Court over parliament’s prorogation, will impact Pound strength.

If the Supreme Court rules that it was unlawful for Prime Minister Boris Johnson to prorogue parliament in the manner he did, the Pound could see a strong reaction as it may lead to fresh political developments and uncertainties.

The safe haven US Dollar, on the other hand, could continue to find support on shifts in risk and trade-sentiment. If US-China trade relations are perceived as worsening again, the US Dollar may weaken.

Upcoming data, such as US Richmond Fed manufacturing stats and US new home sales on Wednesday, could also cause Pound to US Dollar (GBP/USD) exchange rate movement.