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GBP to USD Exchange Rate Tumbles from Monthly Highs as Dollar Rebounds

March 27, 2018 - Written by Tim Boyer

A lack of fresh support for the Pound this week, as well as trade news boosting the US Dollar, knocked the British Pound to US Dollar (GBP/USD) exchange rate by over half a cent on Tuesday. The pair could continue to slip in the coming days if UK data doesn’t impress investors.

Thanks to Brexit and Bank of England (BoE) news, GBP/USD surged from 1.3945 to 1.4131 last week. On Monday, GBP/USD continued to climb and hit a high of 1.4240 – its best level since the beginning of February. However, Tuesday saw the pair slip back below the week’s opening levels.

GBP Sold from Highs amid Lack of Fresh Support

Following last week’s strong Pound performance, investors have had little reason to keep buying the currency so far this week. As investors awaited further UK political news and data, the Pound was sold from its best levels in profit taking.

Much of Sterling’s movements were due to general market movement as March trade, and Q1 2018, draws to a close this week. The selloff was seemingly not influenced by any UK-specific news or data.

Last week’s notable Brexit and Bank of England (BoE) developments bolstered the Pound outlook considerably and helped the British currency to advance.

While some analysts expect the Pound has further to climb, many investors have chosen to take profit from the currency’s highs this week.

According to Viraj Patel, analyst from ING, markets are looking to avoid a Pound rally to finish off the quarter;

‘Today’s price action — and when we are also seeing the Euro (EUR) sliding against the Dollar — doesn’t scream out to us as a Brexit or UK-specific move.

But Sterling’s underperformance highlights its leveraged or high-beta nature — it outperforms in the good times, underperforms in the bad times.’

USD Demand Improves as ‘Trade War’ Jitters Recede

Following weeks of poor performance on US political uncertainties and concerns about the US Presidential administration’s strict tone on US trade tariffs, the US Dollar saw stronger demand on Tuesday.

The US currency was supported by market relief that the US and China may resolve trade clashes through talks rather than ramping up provocative trade tariffs and potentially sparking a global ‘trade war’.

Investors had been anxious for weeks that the US could start a trade war with its protectionist stances on trade. Last week, the US introduced tariffs on imports from China and China rebutted with similar tariffs on US goods.

This week though, reports have emerged suggesting that the nations are talking behind the scenes to avoid a trade war.

According to Michael Hewson, chief market analyst from CMC Markets UK;

‘The rebound in the US [came] as China moved to assuage US concerns about its trade policies by pledging to open up its markets to external companies. Chinese officials also pledged to overhaul protection for intellectual property rights. There was also an offer to buy more US semiconductors, as well as offering to finalise rules that would allow foreign financial firms to take stakes in Chinese securities companies, along with talk of lowering the tariff that is levied on US car imports of 25%’

GBP/USD Forecast: Key Growth Results Could Influence Late-Week Trade

Will the Pound continue to fall against the US Dollar for the remainder of the weeks? Its losses may be limited if key UK data due for publication in the coming days market expectations.

Q4 Gross Domestic Product (GDP) results from both the US and UK will be published in the coming sessions and the figures have the potential to influence the Pound to US Dollar exchange rate.

US growth results will be published tomorrow. US growth is currently projected to have slowed from 3.2% to 2.7% quarter-on-quarter.

UK growth will be published the following day, on Thursday. The quarterly figure is projected to have slipped from 0.5% to 0.4%, with the yearly figure forecast to slow from 1.8% to 1.4%.

Thursday will also see the publication of other key stats, such as UK business investment and US Personal Consumption Expenditure (PCE) data.

As the PCE index is the Federal Reserve’s preferred measure of inflation, Thursday’s US PCE report could also influence Fed interest rate hike bets if it surprises, which would of course affect USD trade.
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