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Pound Sterling (GBP) to US Dollar (USD) Falls as Hard Brexit Concerns Continue to Weigh

December 28, 2016 - Written by Toni Johnson

The Pound to US Dollar exchange rate fell swiftly when UK markets reopened on Wednesday following the long holiday weekend, as a lack of fresh supporting factors for GBP left the currency weak.

GBP/USD lost around two cents in value last week and settled on the level of 1.2278. While it trended flatly amid quiet trade earlier this week, it fell to its lowest level since October on Wednesday – 1.2212.

Pound (GBP) Lacks Supportive Ground This Week



As last week saw the Pound weaken in reaction to underwhelming ecostats and concerns that the UK will lose single market access following the Brexit, it’s unsurprising that GBP has continued to perform poorly amid a lack of fresh news.

Last week it emerged that post-Brexit single market access, or even a new UK-EU trade deal, could be vetoed by just one EU member state. This was perceived by investors as a significant downside factor with a considerable chance to hurt the UK’s trade future.

Following quiet trading on Monday and Tuesday as UK markets observed public holidays, the Pound performed poorly again on Wednesday. This was due to an underwhelming home loans report from the BBA, as well as forecasts of another bearish year ahead for GBP trade.

US Dollar (USD) Sturdy as US Inflation Hopes Remain High



Underlying factors in US Dollar trade remain solid this week as 2017 nears and investors become increasingly excited about a year they hope will be one of reflation and US interest rate hikes.

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The US Dollar’s rally since November has been often perceived as overdone, leaving further ‘Greenback’ advances limited at times. Despite this, short to mid-term factors for the US Dollar remain on the upside, which has left the currency widely appealing.

Tuesday’s US consumer confidence results for December also added to US Dollar optimism as the print improved from 109.4 to 113.7.

GBP/USD Forecast: Further US Dollar Strength Expected in 2017



While movement in the Pound to US Dollar exchange rate may be limited for the remainder of this week, things will quickly become more exciting in January as investors look forward to the year ahead.

In terms of this week’s levels, the Pound to US Dollar exchange rate is unlikely to make a significant recovery unless Thursday’s US advance goods trade balance results from November or the latest US jobless claims figures are highly disappointing.

Brexit concerns will continue weighing on GBP trade and the Pound is unlikely to benefit significantly from a solid house price report from Nationwide either.

Looking ahead to 2017, investors may readjust their positions in the new year amid ongoing speculation for economic stimulus from the Trump administration as well as hopes that the Federal Reserve will hike rates as many as three times throughout the year as previously forecast.

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