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GBP USD Exchange Rate Crashes as Traders Wake Up to Harsh Brexit Realities

March 14, 2017 - Written by Frank Davies

In spite of some disappointing UK wage growth figures the Pound to US Dollar exchange rate was trading bullishly on Wednesday morning.

Some measure of confidence in Sterling was inspired by an unexpected dip in the ILO unemployment rate, which fell to its lowest level since 1975 at just 4.7%.

[Previously updated 14/03/2017]

GBP Update: Heavy Losses as Scottish Independence and Brexit Talks Raise Concerns

In a sharp reversal of fortune, the Pound has shed its gains against the US Dollar from Monday and dropped by -0.6% in the GBP USD exchange rate today.

This follows the rejection of two Article 50 amendments, meaning the bill is set to receive royal assent without any negotiation-aiding modifications.

Additional Pound damage has been caused by Nicola Sturgeon pledging to hold a second Scottish independence referendum.

While this may not take place until after Brexit negotiations, it still represents a significant economic and political hole in the road for the UK to navigate in the future.

GBP Forecast to Worsen against USD on Earnings and BoE Rate Decision

The Pound’s losses against the US Dollar today may only be the tip of the iceberg, given that Wednesday’s UK jobs stats are expected to show falling wage growth in January.

Rounding off what could be the worst week of Pound trading for a while will be Thursday’s Bank of England (BoE) interest rate decision. While no rate change from 0.25% is forecast, BoE officials could still damage the Pound if they forecast further UK economic turbulence due to Brexit negotiations.

The BoE is also under pressure to replace its newly-resigned Deputy Governor, Charlotte Hogg, a process that could further erode confidence in the BoE and by extension the Pound.

USD Gains on GBP as Fed Rate Hike Odds Remain High

The US Dollar has appreciated by 0.6% against the Pound today, with Sterling’s weakness greatly overriding any negative impact from recent US policy criticism.

On this note, the Congressional Budget Office (CBO) has estimated that more US citizens will lose access to healthcare insurance under ‘Trumpcare’ plans than gain it, something that goes against Trump’s ‘insurance for everybody’ mantra.

This report comes just days ahead of Trump’s planned budget revelation on March 16th, which is already being tipped to show major jobs cuts across federal departments.

Further USD GBP Gains Forecast as Fed Interest Rate Decision Approaches

The US Dollar is likely to remain dominant against the Pound on Wednesday, given that the chances of a Fed interest rate hike are still in the region of 95%.

Raising the US interest rate is likely to trigger a strong US Dollar appreciation, which will further extend current USD GBP gains.

Despite this positivity, however, confidence may be somewhat undermined by the day’s retail sales and inflation rate figures, which are predicted to show drops on the month in February.
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