GBP USD Exchange Rate Drops as Confidence Returns to US Traders

March 28, 2017 - Written by James Fuller

STORY LINK GBP USD Exchange Rate Drops as Confidence Returns to US Traders

The British Pound to US Dollar exchange rate edged up from its weekly lows on Wednesday afternoon, but may be unable to sustain any recovery as the Pound’s volatility worsened following the activation of Article 50.

The afternoon’s US house prices data was optimistic which supported the US Dollar. Analysts predict the Pound’s movement could cool later in the week amid expectations that the Brexit process will not see any significant developments until May or June.

[Previously updated 28/03/2017]

GBP Softens ahead of Key Scottish Independence Pre-Vote

The Pound has failed to advance against the US Dollar today, gradually losing ground due to dimming hopes for the UK economy in the near-term.

Previous GBP USD advances were triggered by the US Dollar crash on Monday, which pushed the Pound up despite the Brexit trigger coming this week.

Since those initial advances, Sterling has fallen as the preliminary vote for Scottish Independence approaches a predicted majority approval.

Ahead of the vote, Scottish First Minister Nicola Sturgeon commented on triggering a referendum before the UK and Scotland leave the EU;

‘I think it makes it very difficult for the Prime Minister to maintain a rational opposition to a referendum in the timescale I have set out. I think she has got a perfectly rational opposition to a referendum now, which is why I am not proposing it. But I think based on the discussion today, I would struggle to see what her rational opposition to it would be in the [mid-Brexit] timescale we have been talking about’.

GBP Forecast to Slide against USD on Wednesday’s Brexit Trigger

The Pound is expected to suffer in trading against the US Dollar on Wednesday when Prime Minister Theresa May activates Article 50.

This will officially start the Brexit process and establish a two-year deadline for the UK to leave the EU.

On the one hand, the Pound seems likely to drop as tomorrow means the beginning of the end for the UK-EU relationship.

On the other, the trigger date was announced well in advance and may have been so heavily priced-in that little overall impact is caused.

USD Advances after Hawkish Fed Comments

The US Dollar has gained on the Pound by 0.2% today, a small but nonetheless important improvement on Monday’s day of heavy losses.

As well as incoming Brexit proceedings improving the USD GBP exchange rate, the US Dollar has also been aided by comments from Fed officials Robert Kaplan and Charles Evans.

Both have indicated that inflation is rising on track with their expectations, making slow and steady interest rate hikes in the future increasingly likely.

USD Advance Expected if Fed’s Yellen Follows Suit on Monetary Policy

As Fed Chair Janet Yellen is more influential than Evans or Kaplan, she has the potential to further or reverse current US Dollar to Pound gains with her incoming speech.

Following these remarks, the next major USD movement is likely on Thursday, when final Q4 GDP figures are announced. A quarterly slowdown is forecast, which could erase any prior USD gains this week and see negative trading against the Pound into the weekend.

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TAGS: Daily Currency Updates Pound Dollar Forecasts