GBP to USD Exchange Rate Remains Near Weekly Highs Despite Tax Bill Passage

December 20, 2017 - Written by James Fuller

STORY LINK GBP to USD Exchange Rate Remains Near Weekly Highs Despite Tax Bill Passage

Despite a lack of supportive factors in Pound trade, the British Pound to US Dollar exchange rate has advanced from its recent lows this week. Amid uncertainty about the 2018 US economic outlook, the US Dollar was unable to benefit from news that the US tax bill had passed major obstacles in Congress.

After slipping from 1.3385 to 1.3321 last week, the GBP/USD exchange rate has quickly recovered most of those losses. The pair touched on a high of 1.3415 on Monday and trended just below the level of 1.34 on Wednesday morning.

GBP Gains Limited by Brexit Uncertainties

The Pound has been able to advance slightly against the US Dollar in recent sessions, but this has been largely due to recent UK data.

Last week saw UK inflation, wage growth and retail sales stats all come in higher than expected, and Monday’s UK industrial trends orders data from the Confederation of British Industry (CBI) beat expectations too.

The figure was expected to come in at 14, but instead remained at 17, indicating that factory orders were ending 2017 near a 30 year high.

This data has indicated that Britain’s economy is faring slightly better than expected towards the end of the year, but widespread uncertainty remains about the economy’s outlook, particularly with the most vital portion of Brexit negotiations still to come.

EU negotiators have indicated that UK-EU trade talks will begin in March 2018, just a year before the UK is due to leave the EU in March 2019.

However, despite the uncertainty many analysts remain optimistic that 2018 will be slightly better for the Pound. According to Lee Hardman, currency analyst from MUFG;

‘The weakness of the Pound, which is currently the worst performing G10 currency versus the US Dollar on a month-to-date basis, is likely to be an anomaly,

A quick (Brexit) transition deal still appears the most likely outcome in the first quarter of 2018, a scenario which has yet to be factored into the price of the Pound.’

This optimistic outlook on Brexit negotiations from some analysts has kept the Pound buoyed against some rivals, like the US Dollar.

USD Fails to Capitalise on US Tax Bill Progress

As was widely expected, Tuesday saw the US Republican Party pass its tax cut plans through Congress, passing major obstacles.

The bill is now expected to smoothly enter law after a few more formal steps.

While markets stopped being concerned that the bill could be blocked, the news didn’t give the US Dollar a notable boost. Its passage was already largely priced into US Dollar trade and investors remain anxious about the 2018 US economic outlook.

In its December monetary policy decision last week, the Federal Reserve hiked US interest rates but maintained a cautious stance on interest rates in 2018.

The Fed is concerned about price pressures and some analysts are speculating the Fed may slow to just 2 interest rate hikes throughout the year, rather than the 4 rate hikes markets hoped for. This has weighed on US Dollar appeal in the past week.

GBP/USD Forecast: Key Datasets Ahead

While the Pound to US Dollar exchange rate is unlikely to see a significant shift in tone before the end of the year, data due towards the end of the week could still cause some GBP/USD movement.

Thursday will see the publication of Britain’s November public sector net borrowing results, followed by Britain’s Q3 Gross Domestic Product (GDP) and Q3 business investment figures on Friday.

If UK growth beat expectations in Q3, the Pound could see stronger demand as investors hope that Britain’s economy will remain resilient for longer during the Brexit process.

If the data is largely unsurprising though, Sterling is more likely to be influenced by Brexit developments.

Upcoming US data could be even more influential. Thursday will see the publication of the final Q3 US growth results and Public Consumption Expenditure (PCE) figures, as well as jobless claims.

Friday will follow with more PCE data and November’s durable goods orders results.

If US data beats expectations it could boost bets for more Federal Reserve interest rate hikes in 2018.

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TAGS: Pound Dollar Forecasts