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Pound to US Dollar Exchange Rate Volatile amid Bank of England and US Political Uncertainties

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Pound to US Dollar Exchange Rate Slips from Best Levels as Investors Buy Safe Havens 

The Pound Sterling to US Dollar (GBP/USD) exchange rate slipped lower when markets opened this week. While the pair has been able to sustain most of last week’s gains, it is jittery due to uncertainties in the UK and US outlooks. 

Last week’s GBP/USD was also highly mixed. After opening last week at the level of 1.2933, GBP/USD briefly dipped lower before jumping higher. 

GBP/USD ultimately closed the week at the level of 1.3046 – around a cent higher. This was also close to the past week’s high of 1.3055 – the best level for GBP/USD in a month, since its early-September fall. 

Since markets opened today, GBP/USD has been trending with a slightly bearish bias. At the time of writing, GBP/USD is trending just below the week’s opening levels. 

Pound (GBP) Exchange Rate Outlook Jittery as UK Government Updates Coronavirus Restrictions 

The Pound saw mixed movement today, as investors reacted to a variety of factors. 

The UK government today announced an updated set of coronavirus restrictions, aimed at improving clarity with a tiered system for regions and cities. 

Businesses remain anxious about how these restrictions could harm economic activity without additional support. Overall, Britain’s coronavirus situation is limiting Sterling appeal. 

On top of coronavirus jitters, there is also concern that Brexit negotiations could collapse, and anxiety that the Bank of England (BoE) is moving closer to introducing negative interest rates

In a letter to UK high street banks today, the BoE said: 

‘As part of this work, we are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these.’ 

US Dollar (USD) Exchange Rates Edge Higher on Safe Haven Demand 

The US Dollar has been benefitting from safe haven demand since markets opened this week. 

The US Dollar is a currency which often strengthens in times of global uncertainty. As a result, it strengthened in reaction to news that the Peoples Bank of China (PBoC) had taken action to weaken the Chinese Yuan (CNY). 

Still, analysts predict risk-off movement is unlikely to last much longer. 

This is due to rising bets that Democratic Party Challenger Joe Biden will win the US Presidential Election next month. 

Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could Rise on Optimistic UK News 

While the Pound to US Dollar exchange rate has been pressured today, there is potential for the pair to advance if the outlook improves in the coming sessions. 

If Britain’s coronavirus measures are positively received, the Pound could strengthen. Sterling could also climb if tomorrow’s UK job market report beats forecasts. 

Perhaps the biggest potential impact for the Pound outlook will be how the Brexit process unfolds this week though. 

If there are signs that UK-EU Brexit negotiations will continue past the UK government’s 15th of October deadline, hopes of a deal being reached will rise. 

As for the US Dollar, some analysts believe that safe haven demand may be limited. According to Lee Hardman, Currency Analyst at MUFG, sentiment around the US Presidential Election could make markets more willing to take risks: 

‘Any negative fallout from a failure to reach a fiscal deal before the election will be dampened by expectations for even bigger stimulus after the election, 

Market participants remain optimistic over a Blue Wave,’ 

Overall, the Pound to US Dollar (GBP/USD) exchange rate outlook has the potential to notably improve depending on how the market’s political outlook shifts in the coming sessions.