Pound Sterling (GBP) to US Dollar (USD) Slumps on Brexit Fears Despite US Dollar Selloff

November 28, 2016 - Written by John Cameron

STORY LINK Pound Sterling (GBP) to US Dollar (USD) Slumps on Brexit Fears Despite US Dollar Selloff

The Pound to US Dollar exchange rate advanced last week despite Sterling’s bullishness slowing, as hopes for a resilient UK economy in the face of the Brexit process allowed GBP to hold some gains against a weakening US Dollar.

GBP/USD gained over a cent in value throughout the week, advancing from 1.2342 to 1.2478. On Monday morning the pair briefly hit a two-week-high of 1.2526 before plunging around a cent.

Pound (GBP) Sold as New Brexit Uncertainty Takes Hold

With December approaching and the projected March date for the Brexit process to begin drawing ever-nearer, the foreign exchange market’s Brexit jitters returned on Monday, seemingly taking the Pound down despite last week’s more optimistic GBP trade.

Brexit uncertainty hit Sterling trade again on Monday thanks to news that the UK government now faces a new legal challenge, this time over the UK’s withdrawal from the European Union’s single market.

Lawyers argue that withdrawing from the EU does not automatically mean withdrawal from the European Economic Area (EEA), despite repeated warnings from EU officials that the UK would not be able to maintain access after the Brexit process ends.

While the fight for single market access usually bolsters Sterling demand, the Pound was sold on Monday due to the high level of uncertainty still surrounding the Brexit process with only around four months until it is set to begin.

US Dollar (USD) Struggles to Hold Highs amid Profit-Taking

The US Dollar’s (USD) Trump-influenced bullishness began to fade last week as traders took a more cautious stance on the possibility of an anti-trade US economy under the Trump administration.

USD volatility worsened on Thursday as US markets were closed to observe the Thanksgiving holiday. During Thursday trade, investors sold the ‘Greenback’ in a bout of profit taking during this light and volatile session.

The USD’s selloff continued on Friday when the day’s US advance goods trade balance report for October came in well below expectations. Analysts expected the score to slip from -$56.5b to -$58b, but it instead came in at -$62b.

On Monday, while it performed better than the Pound, ‘Greenback’ trade was limp on Trump trade concerns and uncertainty amid a potential election vote recount in some key states.

GBP/USD Forecast: Key US Ecostats Ahead

The US Dollar could drive GBP/USD exchange rate movement on Tuesday after Monday’s volatile trade, depending on the influence of Tuesday afternoon’s US Gross Domestic Product and Consumer Confidence results.

Tuesday’s American session will see the publication of the Q3 US GDP results, which are expected to improve slightly from 2.9% to 3.0% in the annualized print.

November’s consumer confidence results, on the other hand, are expected to improve slightly from 98.6 to 101.3.

These results could give the US Dollar a significant boost on Tuesday if they impress, as the day’s only influential UK data is October mortgage approvals - which may be overlooked if Brexit news continues dominating headlines.

Underlying movements in GBP/USD also see the pair heading lower in the coming week. As December approaches, Federal Reserve rate hike bets will give the US Dollar significant ongoing support.

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