GBP USD Steady, but US Dollar Exchange Rate Strength Persists

Modified: Wednesday, 12 October 2016 11:35 BST - Written by Ben Hughes

STORY LINK GBP USD Steady, but US Dollar Exchange Rate Strength Persists

The Pound to US Dollar exchange rate has tumbled lower and lower since markets opened this week, as UK market sentiment has been unable to keep the Pound strong while the US Dollar strengthens on Fed rate hike bets and Presidential election bets.

GBP/USD began the week trending at around 1.2435, but since then has consistently weakened. The pair plunged to a new 31-year-low of 1.2108 on Tuesday night, and while the Pound has recovered from this GBP/USD still remains almost two cents down since Monday.

Pound (GBP) Exchange Rates Given Support on Promise of Parliamentary Brexit Debate

Sterling’s primary reason for an extended period of weakness since the beginning of October is concerns within markets that the United Kingdom was headed towards a ‘hard Brexit’ – a Brexit without any of the European Union’s benefits.
While many analysts and EU officials have stated multiple times that Britain cannot keep single market access without also having free movement, markets and investors have continued to hold out hope, and Sterling’s behaviour has reflected market hopes for post-Brexit single market access.

The Pound hit new lows on Tuesday night as it fell victim to a surge in US Dollar demand. However, the currency recovered from this drop by Wednesday thanks to confirmation from UK Prime Minister Theresa May that there would be a debate on Brexit negotiations in UK Parliament.

May had previously stated that MPs would have no vote over Article 50 or Brexit negotiations. A Parliamentary debate is likely to be non-binding, but improved market sentiment slightly due to slim hopes that MPs would debate the possibility of single market access.

US Dollar (USD) Strengthens on Increasing Fed Bets

The US Dollar has increased in value consistently over the last week as things appear to be looking up in the US economy, despite concerns of slowing for much of September.


US Presidential election jitters had dented US markets as well as the US Dollar. However, following Presidential debates between Democrat and Republican nominees, Hillary Clinton and Donald Trump, markets have cooled slightly.

Clinton, seen as more of a successor to US President Barack Obama in terms of economic and foreign policy, has performed well in debates and polls, increasing hopes of long-term stability in US markets even after November’s election.

This, as well as solid September economic data, has also caused bets of a December Federal Reserve interest rate hike to soar. Market futures currency place chances of a December rate hike at 70%.

GBP/USD Exchange Rate Forecast: Will the Dollar’s Sturdy Streak Continue?

The remainder of the week will see little real opportunity for Sterling to surge from its current lows, but the currency may be able to hold its ground if markets remain optimistic towards Parliament’s plans to debate over Brexit negotiating points.
Sterling’s hesitance to advance and continued weakness on Wednesday morning is likely a result of uncertainty on whether these negotiations will actually change the government’s plans to aim for a ‘hard Brexit’.

Meanwhile, the US Dollar continues to strengthen on US data, Fed rate hike bets and US Presidential election bets. With less than four weeks until the election is held, market jitters are sure to return regardless of polling figures.

Thursday’s session will see the publication of Britain’s September house price report from RICS, but this is unlikely to cause considerable GBP movement due to market focus on post-Brexit jitters.

As a result, GBP/USD’s best chances of advancing in the near-term are on US Dollar weakness. Underwhelming US data or a turnabout in Presidential nominee chances will cause the US Dollar to slip, and allow Sterling to make more sustained recoveries.

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