GBP to USD Exchange Rate Falls to Near Week?s Opening Levels on UK Political Uncertainty

November 8, 2017 - Written by Toni Johnson

STORY LINK GBP to USD Exchange Rate Falls to Near Week?s Opening Levels on UK Political Uncertainty

A lack of strong UK economic data as well as fresh UK political uncertainties caused the British Pound to US Dollar exchange rate to fall back from its weekly highs on Wednesday. The US Dollar struggled to capitalise due to tax reform uncertainty.

After trending near a high of 1.3175 for most of the week so far, the GBP/USD exchange rate slipped back down to 1.30, much closer to the week’s opening level of 1.3077.

GBP Sold on Market Concern over UK Political Outlook

UK political uncertainty has spiked over the last couple of weeks, due to a string of scandals within the UK government.

Some high-profile officials left their posts amid a parliament sexual harassment scandal, and on Wednesday it emerged that International Development Secretary Priti Patel could lose her role due to an unrelated issue.

According to reports, Patel met with senior Israeli officials undisclosed, causing concern that she may be sacked as soon as Wednesday evening.

If Prime Minister Theresa May’s cabinet continues to see uncertainty, markets fear this could have a negative impact on May’s perceived strength in Brexit negotiations.

USD Investors Anticipate Tax Reform News

The US Dollar has been kept relatively sturdy in recent sessions by market expectations that the Federal Reserve will hike US interest rates in its December policy decision.

Investors have been hopeful that US President Donald Trump’s plans for tax reform would see success too, but uncertainty about that likelihood worsened slightly on Wednesday.

Mutterings that Senate Republican leaders may delay the implementation of corporate tax cuts for as much as a year weighed on US Dollar demand on Wednesday.

Signs that tax reform plans could fail or be scaled back would lead to further weakness in the ‘Greenback’.

GBP/USD Forecast: Another Round of Brexit Talks Ahead

Regardless of whether or not UK Prime Minister Theresa May’s Conservative Party sees further scandal in the coming days, markets will be setting their sights on the next round of Brexit talks before the week is up.

UK and EU negotiators are due to meet for another set of Brexit negotiations in Brussels. Any indication that obstacles are being toppled and progress is being made would lead to bullish movement in the Pound.

Signs that the second phase of talks, including preliminary trade talks, could begin in the coming months would make the Pound even more appealing.

On the other hand though, if Brexit negotiations appear to remain trapped in a ‘deadlock’, Sterling could see weak trade and may slip further against the ‘Greenback’ towards the end of the week.

As for the US Dollar, it is likely to react to potential developments in US tax reform, as well as upcoming jobless claims and Michigan consumer sentiment data.

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TAGS: Pound Dollar Forecasts