GBP to USD Exchange Rate Trends Nearer Weekly Highs as Political Uncertainties Drag on US Dollar

March 16, 2018 - Written by Frank Davies

STORY LINK GBP to USD Exchange Rate Trends Nearer Weekly Highs as Political Uncertainties Drag on US Dollar

Cautious optimism about next week’s EU summit and the broad weakness of the US Dollar helped the British Pound to US Dollar (GBP/USD) exchange rate to advance on Friday.

Due largely to USD weakness, GBP/USD has climbed over a cent from the week’s opening levels of 1.3849. The pair touched on a weekly high of 1.3993 on Wednesday but trended closer to the level of 1.3965 on Friday.

GBP Investors Anticipate Brexit Developments

For weeks, disagreements between UK and EU negotiators on key Brexit issues has kept pressure on Pound exchange rates.

A lack of clarity on positions has left markets anxious that a ‘hard Brexit’ may still be possible.

This is why GBP investors are highly anticipating next week’s EU summit, when the UK governments expects it will reach an agreement with the EU on a post-Brexit transition period.

Uncertainty about whether Britain is headed towards a ‘hard Brexit’ or ‘soft Brexit’ has caused investors to overlook domestic data and has weighed on Bank of England (BoE) interest rate hike bets too.

USD Slumps on Political Uncertainties and ‘Trade War’ Fears

Perceived turmoil in the US Presidential administration has weighed heavily on the US Dollar over the past week and has only added to concerns that the US could spark a ‘trade war’ with its signals of ramped up protectionism.

Earlier in the week, the US Presidency fired its Secretary of State, Rex Tillerson and replaced him with CIA Director Mike Pompeo.

Fresh reports emerged towards the end of the week suggesting that national security adviser H.R. McMaster may be the next of the administration to get the sack.

The US Presidency’s new economic adviser, Larry Kudlow, also concerned USD investors towards the end of the week by indicating that trade action against China should be taken.

GBP/USD Forecast: EU Summit and Brexit Developments in Focus

While major economic data and central bank news decorate next week’s economic calendar, the Pound to US Dollar exchange rate is more likely to be driven by political developments.

Pound investors are highly anticipating the EU summit from the 22nd to the 24th of March, in the hopes that UK government will secure a post-Brexit transition period deal.

If a transition period deal is secured, the Pound to US Dollar exchange rate is likely to see another week of gains as ‘hard Brexit’ concerns lighten and the Pound strengthens.

However, if no major Brexit progress is made the Pound could shed some of its recent gains.

The US Dollar, on the other hand, is likely to continue to be driven by US political and trade developments.

The Federal Reserve will hold its March policy decision on Wednesday, followed by the Bank of England’s (BoE) on Thursday. Of course, these could also influence GBP/USD investors if they surprise.

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TAGS: Pound Dollar Forecasts