Pound to US Dollar Exchange Rate Climbs from Lows Following Monday Tumble
The Pound to US Dollar (GBP/USD) exchange rate may be on track to fall further if there are no developments in Brexit certainties soon, as Tuesday’s recovery is still small compared to yesterday’s plunge.
After last week’s slide of almost a cent from 1.31 to 1.30, GBP/USD slumped yet again yesterday. This morning, GBP/USD briefly touched on a three-week-low of 1.2942 before recovering slightly. GBP/USD currently trends nearer the level of 1.30 again.
The recovery of 0.2% has been modest at best compared to yesterday’s fall of over a cent, leaving the Pound to US Dollar exchange rate closer to multi-week-lows than the week’s opening levels.
The fall was largely due to the latest fears that UK Prime Minister Theresa May’s Brexit plan could be blocked due to opposition among her own ally parties. Sterling is being perceived as risky, making the safe haven US Dollar (USD) more appealing in comparison.
Pound (GBP) Exchange Rates Fall as UK Political Uncertainties Dominate Headlines
Monday saw Northern Ireland’s DUP Party announce its intention to block the EU’s proposal for a backstop plan for the Irish border.
While the DUP is a Conservative Party ally propping up UK Prime Minister Theresa May’s minority government, this move worsened concerns about how many of the biggest obstacles to May’s Brexit plan are in her ally parties.
The DUP news sparked a selloff in Sterling, which was exacerbated when Prime Minister May’s comments to UK MPs about the progress made in Brexit negotiations had little impact on May’s critics among the backbenches.
On top of fears that the UK government’s Brexit plan could be blocked, Pound (GBP) investors are also anxious about the possibility that some of May’s critics could be looking to mount a leadership challenge.
UK political uncertainties are once again mounting, and until there is a major Brexit development such as the formation of a solid deal, investors will have little reason to buy the Pound either.
US Dollar (USD) Exchange Rates Benefit from European Political Uncertainties
While there wasn’t much in the way of supportive US news yesterday, the US Dollar (USD) benefitted largely from weakness in major rivals like the Pound and Euro (EUR) instead.
As the US Dollar is a safe haven currency, it is often more appealing in times of political risk. Amid the latest slew of UK political and Brexit uncertainties, the US Dollar easily capitalised against Sterling weakness.
The Euro (EUR) is the US Dollar’s biggest rival and was weakened by Italian political jitters on Monday, making the US Dollar even more appealing.
According to Sim Moh Siong, currency strategist at Bank of Singapore:
‘Risk-aversion was the story overnight along with US Dollar strength. Euro’s underperformance is also due to Brexit uncertainty,
There was no follow through in global equities from the huge China rally on Monday as cyclical stocks underperformed,’
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Unlikely to Strengthen Without Brexit Development
Britain’s ecostats are unlikely to be particularly supportive for the Pound this week, as without a significant and optimistic agreement in UK-EU Brexit negotiations the Pound is simply likely to remain unappealing.
As a result, the Pound to US Dollar (GBP/USD) exchange rate could see further losses in the coming week or so, unless US data or global risk-sentiment spurs a US Dollar selloff.
Some notable US data will be published in the coming days, including Markit’s US PMI projections and US new home sales data on Wednesday. Durable goods orders data will be published on Thursday, with growth stats due on Friday.
In fact, if UK political uncertainties and Brexit fears worsen, GBP/USD could still be in for further losses this week.
Essentially, amid persistent Brexit jitters the Pound to US Dollar (GBP/USD) exchange rate is more likely to weaken than strengthen, unless the US Dollar considerably weakens itself.