The Pound to US Dollar exchange rate ended last week flatly near the level of 1.2882, but since Friday the pair has been advancing in reaction to the latest drops in Federal Reserve interest rate hike bets. Mixed Brexit news has limited GBP USD gains.
GBP USD reached a two-week-high of 1.2974 this morning.
Pound (GBP) Outlook Still Cloudy on Brexit Uncertainties
This Pound’s gains against the US Dollar this week have been largely due to ‘Greenback’ weakness, as the mid to long-term outlook for Britain and its currency remains filled with uncertainties.
As the third round of Brexit negotiations between the UK and EU begin in Brussels, EU chief Brexit negotiator, Michel Barnier, has expressed his concerns over the process so far.
Barnier was seemingly unimpressed by the UK government’s Brexit papers. He stated;
‘We need UK positions on all separation issues. This is necessary to make sufficient progress. We must start negotiating seriously. We need UK papers that are clear in order to have constructive negotiations. And the sooner we remove the ambiguity the sooner we will be in a position to discuss the future relationship and to a transitional period.’
European Commission President, Jean-Claude Juncker, has also expressed disappointment with the UK government’s Brexit papers.
Uncertainty among UK diplomats about the supposed UK-EU divorce bill has been persistent.
While the Pound saw a brief jump in demand after UK foreign secretary Boris Johnson admitted a UK-EU divorce bill was necessary, officials including UK Brexit secretary David Davis have been hesitant to be clear on what they think Britain could pay.
EU negotiators have indicated that fresh UK-EU trade talks will not begin until major progress has been made on significant issues such as citizen rights and the divorce bill.
All this Brexit news has weighed on Sterling’s strength, but it has still advanced against a weak US Dollar.
The Pound could see even stronger demand later in the week if key UK ecostats impress investors.
GfK’s UK consumer confidence survey for August will be published, as well as Markit’s August manufacturing PMI.
Over the coming week, Markit’s August PMIs as well as ongoing Brexit developments will have the biggest impact on the long-term Pound outlook.
US Dollar (USD) Outlook Lower as Fed Bets Continue to Fall
The US Dollar has seen poor performance since last Friday, as investors digest the latest comments – or lack of comments, from Federal Reserve Chairwoman Janet Yellen.
Friday saw Yellen hold a speech at the monetary policy symposium at Jackson Hole. Markets had been hoping she would hint that a third 2017 interest rate hike was still a possibility.
However, Yellen avoided discussing monetary policy at all and instead focused on the importance of financial regulation.
This was seen by analysts as a bearish signal, with the Fed clearly hesitating on giving any reassurance about the previously hawkish monetary policy outlook.
Concerns are also rising that the bank may hesitate to begin unwinding its massive balance sheet, despite previously strong intent to do so.
Monday’s US data was relatively solid, with August’s wholesale inventories and Dallas Fed manufacturing prints beating expectations.
However, with the disastrous Tropical Storm Harvey causing severe damage in Houston, Texas, markets have more reason to be concerned about the outlook for US confidence and the US Dollar.
Still, this week’s data could cause the long-term USD outlook to rise if it impresses.
Key Q2 US growth estimates will be published tomorrow, followed by August’s Non-Farm Payroll report on Friday.
If these stats beat expectations, investors will become more hopeful about the resilience of the US economy and the US Dollar could strengthen.
If they disappoint however, the US Dollar is likely to become even weaker and GBP USD will advance.
GBP USD Interbank Rate
At the time of writing this article, the Pound to US Dollar exchange rate trended in the region of 1.2950. The USD GBP exchange rate traded at around 0.7720.
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