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GBP to USD Exchange Rate Slides as Brexit Worries and Solid US Data Keep Up the Pressure

October 30, 2018 - Written by Ben Hughes

Despite attempts from the UK Treasury to be optimistic during Britain’s Autumn Budget, the British Pound to US Dollar (GBP/USD) exchange rate tumbled again today. This was due to broad Brexit fears, as well as strong US data and some lingering market demand for safe haven currencies.

Could GBP/USD be on track for another week of losses? After plunging over two cents last week and falling from 1.3071 to 1.2825, GBP/USD continues to slide on Tuesday despite Monday’s brief recovery attempt. At the time of writing, GBP/USD was trending near a two month low of 1.2734.

GBP Fails to Benefit from UK Budget News as Brexit Fear Continues to Dominate


On Monday, the UK government’s Treasury took a fairly optimistic stance on Britain’s economic outlook during its 2018 Autumn Budget Statement.

UK Chancellor Philip Hammond announced plans for the government to move away from austerity, and even slightly rose the Treasury’s forecasts.

However, the Brexit process was little mentioned during the Budget Statement and Hammond later confirmed that in the event of a worst-case scenario ‘no-deal Brexit’, the Budget would need to be remade.

Despite Hammond’s confidence that the UK and EU would reach some kind of Brexit deal, concerns that negotiations could fall through and lead to a ‘no-deal Brexit’ have been the primary cause of Pound weakness in recent weeks.

As October draws to an end with no UK-EU Brexit agreement in sight, concerns are rapidly rising that a ‘no-deal Brexit’ could become reality. This is keeping pressure on the Pound and making investors hesitant to buy the British currency.

On top of this, Tuesday saw UK Prime Minister Theresa May speak at the Northern Future Forum event in Norway and she reportedly rejected the idea of a ‘Norway for Now’ Brexit deal option.

This is the idea that the UK could stay in the European Economic Area following Brexit until it has reached new free trade agreements with allies.

Reportedly, Norway’s Prime Minister also refused to back the idea of Britain getting such a deal.

This weighed heavily on soft Brexit bets and prompted further Pound selling on Tuesday.

USD Finds Further Support as US Ecostats Continue to Print Solidly


Concerns that the US economy is beginning to take more of a hit from US trade protectionism fears don’t appear to have manifested in weaker economic activity just yet, as recent US data has continued a trend of being fairly solid.

Monday saw the publication of US Personal Consumption Expenditure (PCE) price index data from September.

The monthly price index remained at 0.1% as expected, while the yearly price index slipped from 2.2% but remained fairly solid at 2%.

On top of this, the core PCE inflation figure actually beat forecasts month-on-month, rising from 0% to 0.2% rather than the predicted 0.1%.

It followed last week’s US growth report, which indicated that even though US growth slowed notably in Q3 the nation is still growing at a stronger pace than economists generally expected.

According to Niels Christensen, Chief Analyst at Nordea, the following are this week’s primary causes of US Dollar strength:

‘Trade wars, a recovery on equity markets and poor data out of Europe and stronger data in the US’


GBP/USD Forecast: Investors Look Towards Brexit Developments and US Non-Farm Payrolls


US employment data is most likely to drive the Pound to US Dollar exchange rate in the coming sessions, especially if there is a lack of notable Brexit developments and a persistently limp Pound.

Without major optimistic Brexit news, investors are unlikely to find the Pound appealing. Sterling could continue to be sold in the coming days unless investors find a reason to sell the US Dollar.

Wednesday will see the publication of ADP’s October US job market data, but this is unlikely to be significantly influential ahead of Friday’s major US Non-Farm Payrolls report.

The Bank of England (BoE) will hold its November policy decision on Thursday, but as Brexit fears and uncertainties persist the bank’s tone is unlikely to cause a significant shift in Sterling movement.
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