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GBP to USD Exchange Rate near February Best Despite Generally Optimistic Federal Reserve

February 21, 2019 - Written by Ben Hughes

While market demand for the US Dollar was a little stronger since last night’s Federal Reserve meeting minutes report, the British Pound to US Dollar (GBP/USD) exchange rate held near its best levels today. The Pound found support from fresh Brexit speculation and some stronger than expected UK data.

Since opening this week at the level of 1.2893, GBP/USD has trended with an upside bias. GBP/USD edged higher at the beginning before jumping on Tuesday, and briefly touching a February high of 1.3102 yesterday. This morning at the time of writing, GBP/USD trends near the level of 1.3065, relatively close to those highs.

Investors have been buying the Pound on Brexit hopes, despite fears of splintering and deepening divisions in UK political parties.

The US Dollar saw slightly stronger demand following the latest Federal Reserve meeting minutes report, but not enough to help it push GBP/USD lower.

GBP Exchange Rates Sturdy on UK Data and Hopes for Brexit Progress

Investors appear to be tired of selling the Pound, as despite a lack of solid Brexit developments with under 40 days to go until the formal Brexit date, the Pound is sustaining gains versus major rivals like the US Dollar.

While this is partially due to weakness in the US Dollar, the Pound has seen fresh support of its own in recent session too.

Today, demand for the Pound was bolstered by Britain’s January public sector net borrowing report, which printed well above market expectations and hit the highest surplus on record.

The public finances surplus hit £14.9b, around £5b more than expected and the highest monthly figure since Office for National Statistics (ONS) records began in 1993. It was due partially to the lowest borrowing figure in 17 years.

These stats gave the Pound a leg-up today and was sure to be good news for the UK Treasury, but Pound investors were also excited by comments from UK Chancellor Philip Hammond regarding Brexit negotiations.

Hammond indicated that this week’s talks between the UK government and the EU had been productive, and that an improved deal could be debated in Parliament as soon as next week.

It has also offset some concerns about fractures in UK politics, with multiple MPs quitting the Labour Party and ruling Conservative Party this week to join a new independent group.

Some analysts even believe that the resignations could prove positive in the long-run. According to Marshall Gittler, Chief Strategist at ACLS Global:

‘I’m not yet ready to turn bullish on Sterling, but if more people join the Independent Group, it would be like MPs mutinying against their captains in order to steer the ship away from the iceberg. That could be extremely positive for GBP,’

USD Exchange Rates Steady on Balanced Federal Reserve Minutes Report

The US Dollar was able to avoid further losses versus the Pound today, as the latest Federal Reserve meeting minutes bolstered Fed interest rate hike bets – but just slightly.

The Federal Reserve’s latest minutes report was generally optimistic, noting that the US economy and labour market were both strong.

The Fed’s tone indicated to some investors that one more interest rate hike was still possible this year. This speculation caused a small fresh boost in US Dollar demand.

However, the Fed’s minutes were also generally unsurprising and fell in line with the bank’s tone in its January policy decision. Ultimately, it had little impact on the US Dollar outlook.

As a result, the US Dollar saw steady trend as the Pound was supported by UK data and Brexit hopes.

GBP/USD Exchange Rate Forecast: US Economic Outlook Could be influenced by PMIs

The US Dollar outlook was little affected by the Federal Reserve’s meeting minutes, as the US economic outlook remained strong.

As a result, upcoming US data that will give investors a better idea of how the US economy is performing this month could prove influential.

Today’s American session will see the publication of Markit’s US PMI projections from February. They are expected to show improvements from January, so if they fall it could indicate that the US economic outlook is not as strong as expected.

Other US data to keep an eye out for includes today’s US durable goods orders and existing home sales stats, and speeches from Fed officials could prove influential tomorrow.

As for the Pound, with investors once again hoping that the UK and EU could alter the wording of the Brexit deal enough to make it more appealing to UK MPs, markets will be awaiting further Brexit developments over the coming week.
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