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GBP to USD Exchange Rate Slips Ahead of UK Spring Statement

March 13, 2018 - Written by James Fuller

Broad weakness in the US Dollar, as well as market anticipation for the UK Treasury’s Spring Statement, helped the British Pound to US Dollar (GBP/USD) exchange rate to advance on Monday. The pair shed some of its gains on Tuesday morning though, amid expectations that the Spring Statement was unlikely to be hawkish.

Due to US political concerns GBP/USD advanced last week – from the level of 1.3800 to 1.3849. The pair touched on a high of 1.3916 on Monday, before slipping below the level of 1.39 again on Tuesday.

GBP Weighed by Brexit Uncertainties Ahead of UK Spring Statement

Amid a lack of notable UK data in recent sessions, the Pound has been driven by largely political news such as Brexit uncertainties in recent weeks. This has kept it range bound and has limited its potential for gains, even against a weak US Dollar.

Brexit uncertainty has hit UK headlines again in recent weeks, as new disagreements have emerged between UK and EU negotiators on issues such as a bespoke trade deal and the border between Ireland and Northern Ireland.

With so much back and forth on ‘soft Brexit’ and ‘hard Brexit’ speculation, Sterling movement has been limited and investors have been awaiting more major developments.

Recent UK ecostats have been mixed too and as a result have had little notable impact on the Pound outlook.

For now, Sterling investors are preparing for the UK Treasury’s Spring Statement, due early on Tuesday afternoon.

Markets expect the Treasury will announce that the growth outlook has improved slightly despite the Brexit process.

However, unless there are major surprises, Sterling’s movement is likely to remain limited. According to Lee Hardman, analyst from MUFG;

‘The spring statement will burden of Britain’s 1.7 trillion be the focus today. In terms of the implications for the Pound, it will be limited,’

Sterling has still gained against the US Dollar this week so far, but more than UK news this has been due to US Dollar weakness.

USD Weakens on Wage Growth and US Political Uncertainties

The US Dollar has been unappealing so far this week, as investors have continued to digest the US Non-Farm Payroll results from February which were published last Friday.

February’s US Non-Farm Payroll change figure impress investors with a surprisingly high result of 313k, well above the expected 200k. The previous figure was revised higher too, from 200k to 239k.

However, despite this and an unexpected rise in the participation rate, US average hourly earnings fell short of forecasts in both major prints.

The month-on-month US wage results fell from 0.3% to 0.1% rather than the expected 0.2%, while the yearly figure slowed to 2.6% rather than printing at the forecast 2.8%.

This worsened market concerns that price pressures would not be strong enough to support more than three Federal Reserve interest rate hikes throughout 2018, and left investors even more highly anticipating US Consumer Price Index (CPI) data – due on Tuesday.

Political uncertainties have weighed on USD too. Analysts are concerned that the US Presidential administration’s plans to impose strict trade tariffs on US imports of steel and aluminium could have a negative impact on the US economy.

GBP/USD Forecast: Brexit Concerns and US Data to Take Focus

While Tuesday’s UK Spring Statement and US inflation results could cause most of this week’s Pound to US Dollar exchange rate movement, some US data due later in the week could prove influential too.

Wednesday will see the publication of February’s US retail sales results and PPI figures, as well as January business inventories stats.

Notable US data will be published on Friday too, such as Michigan’s March consumer sentiment survey projections, as well as February housing starts and building permits.

Sterling investors are likely to focus on Brexit developments again once the Spring Statement is over, particularly as the EU summit approaches.

The summit will take place next week, between the 22nd and 24th of March. The UK government has remained optimistic that it will be able to agree to a post-Brexit transition period with the EU during the summit.

Until major Brexit developments like this become reality though, the Pound is unlikely to see much significant change in movement.
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