Pound US Dollar Exchange Rate Struggles to Hold Monthly Best as Sterling Demand Mixed
The Pound US Dollar (GBP/USD) exchange rate has been unable to hold the best levels it saw earlier in the week. Market demand for the Pound (GBP) has been mixed, allowing even a weaker US Dollar (USD) to rebound slightly from its worst levels.
After opening this week at the level of 1.3836, GBP/USD quickly saw a surge in demand as the Pound benefitted from broad US Dollar weakness.
GBP/USD touched on a high of 1.4007 on Tuesday, the best level for the pair in over a month. However, GBP/USD was unable to hold those highs and has been tumbling since.
At the time of writing on Thursday, GBP/USD is trending in the region of 1.3898 as investors await key UK and US PMIs due at the end of the week.
Pound (GBP) Exchange Rates Lack Drive as Political Uncertainties Return
Investors are hesitant to keep buying the Pound, despite Britain’s optimistic economic outlook.
Optimism about Britain’s potential to recover from the coronavirus pandemic later in the year has led to a long period of strength in the Pound.
However, there is speculation that much of the optimism has been priced in now, and the latest UK data has not been enough to further bolster the Pound outlook.
On top of that, analysts warn that UK political uncertainties are returning. Scottish Parliamentary Elections expected in early May could cause a rise in Scottish independence concerns, which analysts think could weigh on Sterling for the time being.
According to Strategists at Westpac:
‘Support for SNP has pulled back from its late 2020 heights as the Brexit trade deal was being finalised but remains high and so concerns over another Independence referendum may rattle markets into the 6th May elections, which is also when the BoE hold their next policy meeting.’
US Dollar (USD) Exchange Rates Benefit from Mixed Pound despite Own Weakness
The US Dollar has also been broadly weak recently. It has been able to mount a recovery against the Pound this week, but this is largely because GBP/USD is recoiling from its best levels rather than any strength in the US Dollar.
Unsurprising US inflation data has offset any of the market speculation of a more hawkish Federal Reserve.
This has also dampened the strength of US Treasury bond yields. Falling US bond yields have been among the primary causes of a weaker US Dollar in recent weeks. According to Junichi Ishikawa, Senior Forex Strategist at IG Securities Tokyo:
‘We’ve confirmed that demand for Treasuries is healthy, which means there is no upward pressure on yields,’
Pound US Dollar (GBP/USD) Exchange Rate Awaits PMI Projections and Fed Decision
With the UK and US economies both speculated to recover from the coronavirus pandemic before the end of the year, economic data and central bank developments are likely to be increasingly important to the Pound and US Dollar movement.
Tomorrow will see the publication of April PMI projections for both the UK and US, from Markit. They will give investors a better idea of how the UK and US economies are performing this month.
However, unless the data is surprising, the Pound and US Dollar are both likely to remain fairly weak.
Investors may instead look ahead to next week, which will be a much busier economic calendar for the US.
In the middle of next week, the Federal Reserve will hold its April policy decision. Following unsurprising US inflation data, a hawkish Fed decision could shock markets and lead to a surge in US Dollar demand.
Key US data including growth rate stats could also influence the Pound US Dollar (GBP/USD) exchange rate next week.