Pound to US Dollar Exchange Rate Fails to Hold Gains as US Dollar Firms versus Rivals
The resilient appeal of the US Dollar (USD), both due to its safe haven status and the strong US economic outlook, have meant that it has been difficult for the Pound Sterling to US Dollar (GBP/USD) exchange rate to hold its gain attempts.
After failing to hold last week’s eight month high of 1.3339 and closing the week at the level of 1.3206, GBP/USD saw another brief rise in demand yesterday before sliding back.
At the time of writing on Tuesday morning, GBP/USD trended near the level of 1.3175 – though the pair still remained over a cent above last week’s opening levels of 1.3047.
The Pound (GBP) outlook has improved lately due to hopes that a no-deal Brexit will be avoided, but uncertainty over how exactly Brexit will unfold is limiting demand. This is making it easier for the more reliable US Dollar to avoid further losses.
Pound (GBP) Exchange Rate Rallies Run Out of Steam as Investors Await Brexit Developments
Fresh hopes that UK Prime Minister Theresa May’s Brexit plan was seeing stronger support, or that the opposition Labour Party’s second referendum amendment was also becoming more popular, only offered the Pound a limited boost yesterday.
The Pound saw a strong surge in demand last week, in response to the government’s latest Brexit plans. The government will offer Parliament votes on no-deal Brexit and a potential Brexit delay if its deal is blocked by Parliament again.
However, as uncertainties persist regarding how exactly Brexit will unfold, the Pound’s rally from last week has seemingly run out of steam.
On top of this, the latest UK construction PMI stats, published yesterday, unexpectedly printed a contraction which put fresh pressure on Sterling.
Some slightly stronger than expected UK services data helped the Pound to avoid further losses today.
US Dollar (USD) Exchange Rates Benefit from Weakness in Rivals
Despite fresh criticism of the US Dollar’s (USD) strength and the Federal Reserve’s interest rate hikes from US President Donald Trump, the US Dollar ultimately firmed on Monday.
As Trump’s criticism of the Fed has not changed the Fed outlook in the past and the Fed has now most likely ended its interest rate hike cycle for the time being, Trump’s latest comments were ultimately swept under the rug by investors.
According to Aaron Hurd, Senior Portfolio Manager of Currency at State Street Global Advisors:
‘Now that the Fed is really in a patient, wait-and-see mode, there’s really not that much behavior to change. That’s already happened. The Fed has gone from hiking to doing nothing, so Trump’s comments don’t really matter unless Trump would be able to convince them to cut, but that’s a much more heroic assumption to make,’
Instead, the US Dollar was more appealing due to the fairly solid US economic outlook, higher US interest rates, and economic uncertainties in the Eurozone and China making the US Dollar more appealing in comparison to major rival assets.
Pound to US Dollar (GBP/USD) Exchange Rate Outlook Could Rise if US Data Disappoints
Recent US data has been mixed, but has generally not been weak enough to have a negative impact on the US economic outlook.
As a result, the US Dollar remained an appealing and reliable investment as investors expect US economic performance has remained strong.
This also means that if upcoming US data disappoints investors though, the Pound to US Dollar (GBP/USD) exchange rate could advance again.
Key US data due for publication in the coming days includes ISM’s US non-manufacturing PMI on Tuesday, as well as US new home sales.
Wednesday’s session will follow with US trade balance results, as well as ADP’s February employment stats.
As for the Pound, any surprising developments in Brexit could also influence the Pound to US Dollar (GBP/USD) exchange rate outlook.