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GBP to USD Exchange Rate Nears Weekly Best amid Brexit Hopes and Risk-Sentiment

January 23, 2019 - Written by Toni Johnson

After struggling to climb earlier in the week amid market demand for safe haven currencies like the US Dollar, the British Pound to US Dollar (GBP/USD) exchange rate has seen stronger demand since yesterday and continued to climb this morning. Demand for the Pound rose thanks to UK data and Brexit speculation, while the US Dollar has been dampened by concerns of slowing global growth.
While GBP/USD only saw very modest gains last week and edged higher from the level of 1.2841 to 1.2875, the pair is on track to sustain stronger gains so far this week. This morning, GBP/USD reached above last week’s best level and trended near a new two month high of 1.2994.

Of course, if there are surprising developments or poor trade news in the coming sessions that make investors hesitant to take risks, demand for the safe haven US Dollar could rise again.

The Pound’s gains versus the safe US Dollar are limited, as while investors are hopeful for optimistic Brexit developments the outlook is still filled with uncertainties.

GBP Exchange Rates Benefit from Bets that No-deal Brexit Will Be Avoided

In a repeat of the mood that helped the Pound to advance last week, the Pound benefitted from optimistic Brexit speculation on Wednesday that helped it to climb versus a weaker US Dollar.

While the UK government’s Brexit ‘Plan B’ proposal was widely seen as unsurprising and more of a reattempt at the initial plan, signs from other corners of UK politics that efforts are being made to avoid a worst-case scenario No-deal Brexit are bolstering Sterling.

With just under two months until the UK is set to formally leave the EU, on the 29th of March 2019, there is anxiety as there is still no sign of how exactly the Brexit process will unfold. The UK government has also indicated it does not plan to delay Article 50.

However, support for amendments that could prevent a No-deal Brexit or a delay to the Brexit process are rising in Parliament, with Britain’s opposition Labour Party indicating it was likely to back such amendments.

According to Thu Lan Nguyen, FX Strategist from Commerzbank:

‘A majority [in Parliament] seems to be emerging in favour of delaying the Brexit date... as a result Sterling has been able to maintain its gains from the past weeks,’

Analysts continue to warn however that delaying Brexit was not a solution, and the possibility of a No-deal Brexit remained which could keep a cap on Sterling’s appeal.

The Pound found support in some stronger than expected UK jobs stats on Tuesday, which helped it to sustain gains versus a weaker US Dollar this week so far.

USD Exchange Rates Slip as Central Banks Express Caution

So far this week, markets have been reminded that the global economy is slowing and economists around the world are taking a more cautious stance.

The Bank of Japan (BoJ) left monetary policy unchanged as expected during its policy decision this week, but also expressed caution about the global growth outlook.

Analysts expect the European Central Bank (ECB) will take a similar stance during its upcoming policy decision on Thursday, with particular focus to the slower than expected Eurozone economic outlook.

As the Euro (EUR) is the US Dollar’s biggest rival this has benefitted the US Dollar slightly. Overall though the weaker global market outlook is making investors more eager to take risks – and this is making investors sell the safe haven US Dollar.

Some weak US home sales data yesterday may also have limited market demand for the US Dollar, making it easier for GBP/USD to sustain gains.

GBP/USD Exchange Rate Forecast: US Growth Estimates and Central Bank News in Focus

The Pound to US Dollar exchange rate could keep climbing on hopeful Brexit speculation in the coming sessions, but as the Pound’s potential for gains is limited by broad uncertainties over the Brexit process’s outlook the US Dollar could recover.

Thursday will be the biggest session this week in terms of influential US data. US jobless claims, Markit’s January PMI projections, Kansas Fed’s manufacturing index and CB’s leading index results will all be published.

In particular, Markit’s PMI projections could give investors a better idea of how the US economy is performing this month.

If the results beat expectations, concerns of the US being hit by the global economic slowdown could lighten slightly and the US Dollar could strengthen.

The European Central Bank’s (ECB) January policy decision could influence the US Dollar on Thursday too. If the ECB is more negative about the Eurozone economy than expected, the US Dollar could benefit from weakness in its rival the Euro.

Of course, any notable developments in the Brexit process or US politics will remain influential for the Pound to US Dollar exchange rate as well.
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