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GBP to USD Exchange Rate Trends Near Best 2019 Levels as Option of Brexit Delay Emerges

February 26, 2019 - Written by David Woodsmith

While it has been unable to hold its best levels, the British Pound to US Dollar (GBP/USD) exchange rate climbed yesterday as signs emerged regarding how the Brexit process could unfold from here. The US Dollar’s losses were limited as investors awaited Federal Reserve comments.

After opening this week at the level of 1.3047, GBP/USD has only climbed further. GBP/USD touched a high of 1.3222 near midday today as Brexit speculation built steam, and this was the best level for the pair since October 2018. GBP/USD has since slipped to around 1.3157.

The Pound’s potential for gains versus the US Dollar was limited by a combination of strong US data and market anticipation for comments from Federal Reserve officials over the coming days.

GBP Exchange Rates Jump as UK Government Explains Option of Brexit Delay

Over the past week, the Pound has benefitted from speculation that the UK government was considering delaying the formal Brexit date from the 29th of March.

Yesterday, the government finally indicated how it would set out the possibility of Brexit being delayed – but it also means that uncertainty over whether Brexit will be delayed or not will persist until the next meaningful vote on the 12th of March.

The UK government plans to hold the next Parliament vote on its Brexit plan on the 12th of March, and depending on how the vote goes the government is planning other significant votes.

If the government’s Brexit plan is blocked again, it will ask whether or not Parliament supports a No-deal Brexit.

If MPs support a No-deal Brexit, the government will hold a vote on if Article 50 should be extended – leading to a ‘short, limited’ Brexit delay.

As investors were already pricing in some kind of Brexit delay, the uncertainty of a vote combined with the likelihood of the delay being short limited the Pound’s potential for gains later in the day.

On top of this, investors were also disappointed that a No-deal Brexit remained an option.

According to Naeem Aslam from Think Markets:

‘She has said ‘chose between my deal or delay the Brexit’.

This political circus has become a real joke. Investors do not need uncertainty and there was a lot of optimism in the market because investors were thinking that no deal scenario is off the table, but now, it seems like it is still on the table.’

USD Exchange Rates Steady as Federal Reserve Officials Testify Before US Congress

Investors were hesitant to move too much on the US Dollar today, and this limited the Pound’s gains against the US currency.

Anticipation for notable Federal Reserve comments, as well as some influential US data later in the week, made investors firm in the US Dollar instead of making any big movements on it.

Federal Reserve Chairman Jerome Powell took a relatively unsurprising tone during his testimony to US Congress today.

He expressed concerns about slowing growth both globally and in the US, and said there were conflicting signals about US economic health. As a result, he maintained the Fed would have a wait and see approach on monetary policy this year.

The latest US data has also limited the US Dollar’s losses versus the Pound though. Wholesale inventories beat expectations on Monday and building permits beat forecasts today.

GBP/USD Exchange Rate Forecast: Federal Reserve News and Brexit Developments in Focus

The Brexit process will see another day of debate in Parliament on Wednesday, during which some amendments could be discussed.

Any surprising amendments that influence the Brexit outlook could have a major impact on the Pound outlook, but analysts currently doubt any major ones will pass.

Instead, investors are now looking ahead to the 12th of March meaningful vote, as well as buying the Pound on rising hopes that MPs will vote against a No-deal Brexit if it comes to it.

While Britain’s economic calendar will be quiet until confidence data comes in on Thursday, Sterling could keep climbing unless there are signs that MPs could block the Brexit plan and still support a No-deal Brexit.

The US Dollar could drive GBP/USD movement a little more tomorrow, as Federal Reserve Chairman Jerome Powell will offer yet further testimony on US monetary policy.

US factory orders results from December, due tomorrow afternoon, could also influence the Pound to US Dollar exchange rate.
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