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Pound Sterling to US Dollar Exchange Rate Continues to Climb on Brexit Hopes and Fed Bets

Pound to US Dollar Exchange Rate Gains Limited by Brexit Uncertainties

Despite the Pound Sterling to US Dollar (GBP/USD) exchange rate climbing on Brexit hopes this week so far, market jitters have only worsened as the formal Brexit date is under three months away. This has limited the Pound’s (GBP) strength.

Last week, US Dollar (USD) movement caused GBP/USD fluctuations, taking GBP/USD to highs of 1.2855 and lows of 1.2481. GBP/USD climbed at the end of the week, and ultimately gained from an opening level of 1.2698 to around 1.2723.

This week so far, GBP/USD has continued the advance it saw late last week. At the time of writing it was only slightly higher than the week’s opening levels however, trending near the level of 1.2760.

Hopes that a ‘no-deal Brexit’ can be avoided have left the Pound slightly more appealing this week, but the outlook remains clouded by uncertainties over how exactly the Brexit process will unfold.

This is limiting the Pound’s strength, but the US Dollar’s strength is limited too as investors continue to become more cautious about the Federal Reserve’s US monetary policy outlook.

Pound (GBP) Exchange Rates Bolstered by Hopes that ‘No-Deal Brexit’ Can be Blocked

Investors have found the Pound a little more appealing this week, amid anticipation that the UK Parliament debate over UK Prime Minister Theresa May’s Brexit deal will resume this week.

The debate on the deal is expected to begin again on Wednesday, with the highly anticipated vote on the deal expected to take place next Tuesday.

Since markets opened this week, it has been reported that a cross-party group of UK MPs have tabled an amendment to dissuade the UK government from heading for a ‘no-deal Brexit’, even in the event that May’s deal is defeated in a vote.

Despite this though, the Pound’s gains have been limited. The imminence of the vote as well as the formal Brexit date still being set for March 2019 have left the outlook murky and investors are hesitant to buy the currency much.

According to Kit Juckes, Currencies Strategist at Societe Generale:

‘GBP/USD can bounce fiercely if only there’s some good news,

Under these circumstances it is clearly impossible to make reliable GBP forecasts. Anything from an endlessly drawn-out Brexit to an amicable agreement or a hard Brexit, everything remains within the realms of possibility, so that the outlook for Sterling also ranges from a recovery rally to currency crisis.’

US Dollar (USD) Exchange Rates Strengthen Slightly Following Days of Losses

The Pound’s rally versus the US Dollar was limited on Tuesday, as the US Dollar rebounded slightly following four consecutive days of falls since last week.

However, the US Dollar’s recovery was limited too, as recent US news and data that left the US Dollar unappealing continued to weigh.

Last week, China’s Central Bank introduced easing measures and Federal Reserve Chairman Jerome Powell indicated the Fed would be patient and flexible regarding US interest rates. This made markets more confident that the Fed policy outlook was becoming more dovish.

Monday followed with some disappointing US data, including ISM’s December non-manufacturing PMI which unexpectedly printed at 57.6 rather than the expected 59.0.

These factors weighed on the US economic outlook and the US Dollar, limiting its Tuesday recovery versus the Pound.

Pound to US Dollar (GBP/USD) Exchange Rate Investors Anticipate Fed Minutes

Some fairly notable UK and US ecostats will be published in the coming sessions, including UK labour productivity on Wednesday, and Friday will follow with UK growth and trade stats, as well as US inflation figures.

However, unless these figures are highly surprising they are unlikely to have as strong an impact on the Pound to US Dollar (GBP/USD) exchange rate outlook as upcoming Central Bank and political developments could have on the pair.

Pound investors are highly anticipating potential Brexit developments. UK Prime Minister Theresa May’s Brexit deal debate will resume on Wednesday, with UK Parliament finally expected to vote on the deal next Tuesday.

While Brexit uncertainties and tensions weigh on Sterling, the US Dollar is being weighed by uncertainties too.

Investors were confused by the surprisingly hawkish tone the Federal Reserve took in its December policy decision last month, so the Fed meeting minutes due to be published on Wednesday evening could prove influential.

The US Dollar could find some additional support if the US government shutdown finally comes to an end soon, which would make it more difficult for the Pound to US Dollar (GBP/USD) exchange rate to climb further.