Speculation over UK-EU Trade Deal Fuels Pound US Dollar (GBP/USD) Exchange Rate Volatility
Hopes that the UK and EU could continue trade talks helped to push the Pound Sterling to US Dollar (GBP/USD) exchange rate higher.
As UK foreign secretary Dominic Raab noted that the two sides are ‘close’ to a deal this encouraged hopes that Boris Johnson would not choose to walk away from discussions.
A dip in the odds of a potential no-deal scenario offered Pound Sterling (GBP) a solid boost against its rivals, reversing some of Thursday’s losses.
Even so, the lingering sense of uncertainty surrounding the UK’s future relationship with the EU ultimately limited the Pound’s ability to push higher across the board.
With tighter Covid-19 restrictions coming into place across the UK worries over the economic outlook still lingered.
Stronger US Retail Sales May Shore up US Dollar Demand
The mood towards the US Dollar (USD) could see some improvement this afternoon, though, if September’s retail sales data strengthens.
An uptick in spending on the month would suggest that consumers had adopted a more optimistic outlook at the end of the third quarter, improving the odds of a stronger growth rate.
The latest US industrial and manufacturing production figures may also offer a rallying point to USD exchange rates ahead of the weekend.
As long as the manufacturing sector shows resilience in the face of ongoing political uncertainty and Covid-19 disruption the appeal of the US Dollar could pick up.
On the other hand, any evidence that production momentum started to falter last month may leave USD exchange rates exposed to weakness.
Growing jitters ahead of the upcoming presidential election could also weigh on the US Dollar, given that the prospect of fresh fiscal stimulus remains distant.
As Naeem Aslam, chief market analyst at AvaTrade, commented:
‘Given that there are less than three weeks left for the U.S. election, it seems immensely difficult how the lawmakers will be able to pull a deal together before the U.S. elections, especially given their previous differences.’
Any fresh dovish comments from Federal Reserve policymakers may also prompt the GBP/USD exchange rate to gain further ground.
Improved UK Inflation May Offer GBP/USD Exchange Rate Rallying Point
While fresh UK economic data looks thin on the ground in the days ahead the Pound may find fresh demand on the back of Wednesday’s UK consumer price index report.
Forecasts point towards the inflation rate picking back up on the month, strengthening to 0.4% after August’s shock -0.4% reading.
A return to positive territory for the inflation rate may offer the Pound a solid boost against its rivals, with positive inflation giving the Bank of England (BoE) less cause for concern.
Even so, as long as anxiety over the UK’s future relationship with the EU persists this may keep the GBP/USD exchange rate on a weaker footing.