Pound US Dollar (GBP USD) Exchange Rate Extends Gains on ?Greenback? Apathy

Modified: Friday, 29 December 2017 14:35 BST - Written by Toni Johnson

STORY LINK Pound US Dollar (GBP USD) Exchange Rate Extends Gains on ?Greenback? Apathy

The Pound US Dollar (GBP USD) exchange rate extended its gains on Friday, bolstered by fresh weakness in the Euro caused by apprehensions regarding the upcoming Italian general election and an ongoing lack of demand for the ‘Greenback’.

Pound (GBP) Exchange Rates Capitalise on Eurozone Political Woes

The Pound is on track to end 2017 on solid form this Friday, rising against the majors in reaction to news that Italian President Sergio Mattarella has formally dissolved parliament to clear the path for the general election in March.

Markets are currently concerned with the sheer amount of pressure that the ruling left-wing Democratic Party (PD) will face on all fronts, with the Eurosceptic Five Star Movement (M5S) expected to claim a massive 40% of the vote and similar rising support expected for the Eurosceptic right-wing party Forza Italia.

This is pertinent primarily because investors worry that a push for independence from another nation in the Bloc could prove one too many; eventually prompting massive turbulence for the Euro area and the single currency itself.

US Dollar (USD) Exchange Rates Limited by Uncertain Fed Policy Outlook

The ‘Greenback’ has spent the majority of the holiday period on poor footing, limited by some below-forecast domestic data prints but, more specifically, uncertainty regarding the US Federal Reserve’s monetary policy in 2018.

Whilst the Fed has forecast three additional rate hikes next year, the change in leadership in February - when Jerome Powell replaces current Chair Janet Yellen – could prompt deviations in monetary policy.

Beyond this, concerns remain regarding America’s persistently below-target levels of inflation and the significance of the recent sweeping tax reform measures – with many analysts not expecting the changes to have any effect for some time.

Lacking any pertinent data releases today the GBP USD exchange rate will likely remain on similar form.

GBP USD Forecast: Brexit Negotiations and Pertinent Data in the New Year

Phase 2 Brexit negotiations are set to resume in the New Year, with markets happy that sufficient progress has been made, but disappointed that trade talks will not be able to take place until March 2018 at the earliest.

This could work two ways; a demonstration of progress in transitionary talks could propel Sterling, whilst any signs of further stagnation – particularly if it’s akin to the stagnation seen during phase 1 – could put the Pound under renewed pressure.

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TAGS: Pound Dollar Forecasts