Pound to US Dollar Exchange Rate Struggles to Sustain Recovery amid Safe Haven Demand
Due to the latest global trade fears, investors have continued to buy safe haven currencies this week and the British Pound to US Dollar (GBP/USD) exchange rate’s appeal has been limited.
Following last week’s notable GBP/USD tumble from 1.2381 to 1.2160, resilience in the US Dollar (USD) has prevented the pair from making a sustained recovery.
GBP/USD continues to fluctuate in a tight region near the week’s opening levels today, keeping it less than a cent above last week’s two year low of 1.2090.
The US Dollar is a safe haven currency that often sees stronger demand in times of market uncertainty. While the latest uncertainties have had mixed influence on the US Dollar, safe haven demand is generally keeping GBP/USD near its lows.
Pound (GBP) Exchange Rates Steadier but Struggling for Direction amid Brexit Uncertainty
Yesterday, the Pound’s (GBP) movement steadied following a week of sharp and volatile movements as no-deal Brexit fears worsened.
The perceived chance of a worse-case scenario no-deal Brexit has risen since Boris Johnson became Britain’s new Prime Minister and formed his government.
UK government officials have since indicated on multiple occasions that it is serious about aiming for a no-deal Brexit if the EU does not agree to renegotiate the UK-EU withdrawal deal. The EU has shown no signs that it will agree to renegotiation.
This is leaving the Pound highly unappealing. Though the Pound’s selloff has slowed and movement has steadied, its potential for recovery is limited. Sterling movement has been driven more by strength in rivals since yesterday.
US Dollar (USD) Exchange Rates Supported by Safe Haven Demand but Clouded by Trade Fears
Demand for the US Dollar has been mixed this week, as the US currency is influenced by various factors including US-China trade tensions and US data.
Markets fear that US-China trade relations are breaking down after US President Donald Trump announced new tariffs on US imports of Chinese goods. Meanwhile, China allowed its currency the Chinese Yuan (CNY) to fall to its lowest levels in a decade.
Fears that no resolution on US-China trade tensions will be reached over the next year have led to higher demand for safe haven currencies like the US Dollar.
However, the US Dollar’s strength is limited by expectations that the tensions will directly impact the US economy.
US Dollar movement has been mixed as a result, though the currency steadied more overnight as US officials indicated that the US intended to continue with US-China negotiations despite the latest flare up in tensions.
Pound to US Dollar (GBP/USD) Exchange Rate Awaits Geopolitical Developments
Both the Pound and US Dollar have steadied since yesterday, as Brexit and US-China uncertainties persist and keep investors hesitant to make any major moves on the currencies.
With the Pound’s appeal weighed by no-deal Brexit fears and concerns over how much US-China trade tensions could impact the US economy or Federal Reserve outlook, these geopolitical factors are likely to remain the focus for the GBP/USD outlook.
Sterling is unlikely to see much in the way of a sustained recovery unless there are some optimistic Brexit developments, or the US Dollar weakens on US economic concerns.
The US Dollar could strengthen if there are signs of US economic resilience despite trade jitters. If tomorrow’s US wholesale inventories data from June beats forecasts it could offer the US Dollar some support.
Friday’s key UK data, which includes growth and business investment stats, could also influence the Pound to US Dollar (GBP/USD) exchange rate in the absence of notable geopolitical news.