GBP USD Exchange Rate Continues Climb despite Bank of England’s (BoE) Uncertainty
Despite persisting no-deal Brexit fears and a cautious Bank of England (BoE), the Pound Sterling to US Dollar (GBP USD) exchange rate continues to advance. This is largely due to continued broad weakness in the US Dollar (USD).
Since opening this week at the level of 1.3227, GBP/USD has been trending with a solid upside bias.
GBP/USD continues to benefit from US Dollar weakness, climbing to a new 2020 peak. At the time of writing, GBP/USD trends near that peak of 1.3619 – the best level for the pair since 2018.
GBP/USD has more than recovered last week’s losses. What’s more, if UK-EU Brexit negotiations reach a deal soon, the Pound outlook is only likely to rise further.
Pound (GBP) Exchange Rates Rising on Brexit Speculation despite Bank of England (BoE) Uncertainty
The Bank of England (BoE) held its December policy decision today. As expected, the bank left monetary policy frozen at the current record low of 0.1%.
Notably, the bank said that Britain’s economic outlook was ‘unusually uncertain’. The coronavirus pandemic, combined with Brexit negotiations going down to the wire, have left Britain’s outlook extremely volatile.
Hopes that a Brexit deal is close persist and are keeping Sterling buoyant. Reportedly, UK Prime Minister Boris Johnson is prepared to call off Parliament’s Christmas recess in order to vote on a deal if one is made soon.
US Dollar (USD) Exchange Rates Remain Unappealing as US Closes in on Stimulus Deal
The safe haven US Dollar continues to be battered by rivals. As the global market outlook improves, investors continue to sell the safe haven US Dollar in favour of riskier assets with higher yields.
After months of deadlocks in cross-party negotiations, US Congress is reportedly closing in on a $900b coronavirus relief plan.
Hopes for strong US fiscal stimulus and coronavirus vaccine hopes are combining to keep markets more and more optimistic. According to Mark Haefele, Chief Investment Officer at UBS GWM:
‘While we expect stocks to benefit further from positive news on vaccine rollouts and U.S. fiscal support, the same cannot be said for the US Dollar
Safe-haven demand for the dollar is being eroded by a broadening global recovery’
Pound US Dollar (GBP USD) Exchange Rate Could Plummet Again if Brexit Talks Collapse
The Pound to US Dollar exchange rate is likely to keep being influenced by the same underlying factors in the coming sessions. If the UK and EU continue to close in on a deal or even reach one, more GBP/USD gains are likely.
On the other hand though, if negotiations show signs of collapsing, the Pound could quickly shed all its recent gains.
The threat of a no-deal Brexit is still a significant downside risk. The Pound’s recent appeal would evaporate if Brexit talks fail.
What’s more, a no-deal Brexit would heighten safe haven demand and boost the US Dollar as well.
The US Dollar will likely remain unappealing if markets remain optimistic on Brexit and coronavirus outlooks though.
This means that if a Brexit deal is reached as is generally expected, the Pound to US Dollar (GBP USD) exchange rate outlook only has higher to rise.