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GBP to USD Exchange Rate Holds Above Week?s Opening Levels Despite Concerns about UK Consumer Activity

December 28, 2018 - Written by Toni Johnson

Investors bought the British Pound to US Dollar (GBP/USD) exchange rate on Friday, keeping the pair above the week’s opening levels despite a lack of Sterling appeal. The US Dollar has been weak for most of the week due to US political uncertainties and signs of slowing global growth. A weak Pound has simply been unable to capitalise on USD weakness.

Since opening this week at the level of 1.2632, GBP/USD has trended largely with an upside bias. GBP/USD touched on a fortnight high of 1.2766 in the middle of the week before slipping, but at the end of the week still trended slightly higher than the week’s opening levels. GBP/USD trended near the level of 1.2690 at the time of writing.

GBP Exchange Rate Strength Limited as Brexit Uncertainties and UK Economic Outlook Weighs

2018 will end with UK politicians and economists still filled with uncertainties regarding how the Brexit process will unfold.

The UK is set to formally leave the EU just over three months from today, and the nation’s politicians have still not agreed to how exactly the Brexit process will end.

Will the UK leave the EU with a close deal and partnership with the bloc? Will it leave with no deal at all and leave the nations’ connections walking off a cliff-edge? Could the deal be changed or may there not even be a Brexit at all?

Despite well over a year of difficult UK-EU negotiations, all of these possibilities remain as UK MPs don’t appear to support UK Prime Minister Theresa May’s negotiated deal.

This has left markets jittery at the end of 2018, and the Pound remains unappealing with the future of Britain’s economy seeing even deeper uncertainty than ever.

Sterling’s gains versus the US Dollar this week were largely due to US Dollar weakness, but GBP/USD gains were even further limited by signs that Britain’s retail sector had an underwhelming holiday season.

Amid reports that Britain’s music retail chain, HMV, was entering administration following the holiday period, analysts warned that more must be done to protect the retail sector, one of the biggest job sectors in Britain.

According to Richard Lim, Chief Executive from Retail Economics:

‘The fast-paced evolution of consumer preferences has left retailers struggling to adapt business models swiftly enough to meet customer’s heightened expectations. A laser-like focus on strategic transformation will emerge as the overriding priority for many retailers heading into 2019.’

USD Exchange Rates Weaker on US Political Jitters and Expectations for Slowing Global Growth

It’s been a bearish week for the US Dollar, which has helped the Pound to US Dollar exchange rate to rise despite the Pound’s broad weakness.

Throughout the week, the US Dollar has been pressured by US political uncertainties amid a lasting US government shutdown.

The shutdown began at the end of last week as US President Donald Trump failed to find enough votes to pass a funding bill through the US Senate. He insisted that the bill contain funding for his controversial border wall plan, which lacks bipartisan support in the Senate.

As the US shutdown persists despite Congress meeting again on Thursday, analysts no longer expect the shutdown to be resolved this year.

On top of US political jitters, the US Dollar has been weakened by market expectations that global growth will slow in the coming year.

The US economy benefits strongly from global growth. This, as well as uncertainty about the Federal Reserve’s 2019 monetary policy outlook, has worsened the US economic outlook and weighed on the US Dollar.

GBP/USD Exchange Rate Forecast: PMIs and US Job Stats Ahead, US Politics in Focus

Next week could be a vital one for the US Dollar, as multiple datasets showing how the US economy performed at the end of 2018 will be published and the US House of Congress will reconvene with its new Democratic Party majority.

During the US mid-term elections in 2018, the US Democratic Party won control of the House of Congress. This will come into effect next week, on the third of January.

Markets are hoping that this will help bring the US government shutdown to an end, which could strengthen demand for the US Dollar and knock GBP/USD lower again.

While US political developments and any potential UK political news could be particularly influential, upcoming major US data and some notable UK stats could also influence GBP/USD.

Following closed markets to observe New Year’s Day, markets will reopen on Wednesday and UK and US manufacturing PMIs will be published throughout the day. US manufacturing data is more likely to be influential.

It will be followed on Friday by UK services PMI data, and US Non-Farm Payroll results from December. This means the Pound to US Dollar exchange rate is more likely to see a big shift towards the end of next week.
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