January 15, 2019 - Written by Ben Hughes
STORY LINK Pound-to-Dollar Exchange Rate Sheds Gains Ahead of Key UK Parliament Brexit Vote
Speculation of a Brexit delay, as well as lasting weakness in the US Dollar, prompted investors to buy the British Pound to US Dollar (GBP/USD) exchange rate yesterday. However, the pair’s gains were limited, and investors quickly sold the pair again on Tuesday as a key UK Parliament vote over the Brexit process approached.
The US Dollar has been weaker this year so far, and this was one of the main reasons GBP/USD surged from 1.2722 to 1.2841 last week. GBP/USD briefly touched on a two month high of 1.2918 on Monday evening on the tail-end of USD weakness, before sliding this morning as Brexit jitters set in again.
Investors were hesitant to move too much on the Pound to US Dollar exchange rate this morning overall, amid expectation that this evening’s UK Parliament vote on Brexit would not succeed.
Political uncertainty in the UK is dominating Pound movement, and US economic and political concerns are limiting market demand for the US Dollar as well.
This volatile GBP/USD movement could see a strong shift if there are surprising political developments in the coming days however.
GBP Exchange Rates Steady with Major Brexit Vote in Focus
After the UK government delayed a UK Parliament vote on its negotiated UK-EU Brexit withdrawal plan back in December, the vote is scheduled to finally take place this evening – at 19:00 GMT.
UK Prime Minister Theresa May Delayed the vote in order to secure more support, in the hopes it would help the bill to pass through Parliament.
However, there are not yet any signs that May’s deal has seen a surge in support and analysts still widely expect the deal will be blocked, leading to a UK political deadlock over how the Brexit process will unfold.
According to Jasper Lawler, Head of Research at London Capital Group:
‘Brussels have stood firm, refusing to offer anything other than warm words to Theresa May as she heads to the Parliamentary show down. With no further reassurances over the Irish backstop there has not been the change in tide that Theresa May needed,’
There are many potential outcomes if May’s deal is defeated as expected, and the uncertainty over which path the Brexit process will take is leaving Sterling highly volatile.
As long as a general election or No-deal Brexit remain two of the major possibilities, the Pound outlook sees significant downside pressure.
USD Exchange Rates Firm Following Weeks of Losses
US-China trade developments and falling Federal Reserve
interest rate hike bets have caused US Dollar weakness since the beginning of the year, but the US Dollar’s selloff has slowed this week.
Market US Dollar sentiment is largely unchanged, but investors also have little reason to keep selling the US currency as Federal Reserve interest rate hike bets are now largely priced in.
Monday saw the publication of US consumer inflation expectations from December, which came in slightly stronger than expected and rose from 2.97% to 3.0%. This also helped the US Dollar to avoid further losses.
However, while Brexit uncertainties helped the US Dollar to rebound slightly today, the US Dollar’s strength was limited by news that China was planning fresh economic stimulus.
This news made investors more willing to take risks which weighed on the safe haven US Dollar.
GBP/USD Exchange Rate Forecast: Major Volatility and Sharp Movement Could Be Ahead
This evening’s UK Parliament vote on Brexit is likely to be the primary drive of Pound movement in the coming days, and could lead to a series of major Brexit developments depending on how it unfolds.
If the vote somehow succeeds, a soft Brexit will be confirmed and the Pound will soar.
However, the vote is widely expected to fail. If the vote fails by a significant margin, hopes that UK Prime Minister Theresa May could get more support on side would fade and the Pound may see further weakness.
Potential next steps for the UK government and MPs, including a possible general election, are also likely to leave the Pound unappealing if they worsen UK political uncertainties.
Upcoming UK and US data is unlikely to be as influential in comparison. UK inflation data will be published tomorrow, as well as US export and import prices.
The US Dollar is more likely to be driven by US political news or trade developments. US-China trade progress or changes in the US government shutdown could influence the Pound to US Dollar exchange rate.
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TAGS: Pound Dollar Forecasts