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Pound Sterling US Dollar (GBP/USD) Exchange Rate Flat on No-Deal Brexit and US Recession Fears

March 25, 2019 - Written by John Cameron

Pound US Dollar (GBP/USD) Exchange Rate Muted as UK ‘Increasingly Likely’ to Leave EU Without a Deal

The Pound Sterling US Dollar (GBP/USD) exchange rate was left muted following disappointing US data and the pairing is currently trading at an inter-bank rate of $1.3202.

February’s Chicago Fed National Activity Index slipped further, from an upwardly revised -0.25 to -0.29.

This also added to the growing fears of a US recession that likely caused the ‘Greenback’ to slide against the Pound.

Meanwhile, the European Commission has put more pressure on Sterling today, as they warned the UK is ‘increasingly likely’ to leave the European Union without a deal.

Despite this, the Pound continue to claw back losses from earlier this morning with the pairing left muted.

US Dollar (USD) Flat on Fears of US Recession

Fears of a potential US recession increased over the last few days, however this morning the Pound (GBP) continued to slip against the US Dollar (USD).

However, this likely weighed on the US Dollar later during Monday’s session, leaving the GBP/USD exchange rate flat.

Another part of the US yield curve inverted, and when this happened in the past a recession has always followed.

Commenting on this, Martin Farrer of the Guardian said:

‘Adding to the fears of a more widespread global downturn, manufacturing output data from Germany on Friday showed a contraction for the third straight month.

‘In response, US 10-year treasury yields slipped below the three-month rate for the first time since 2007 as nervous investors ploughed their money into the safe haven of bonds rather than riskier assets such as shares.

‘This so-called inversion of the bond yield curve – where long-term rates fall below short-term – has predicted every recession for the past 60 years.’

Earlier: Sterling (GBP) Slips as PM Accused of ‘Chickening Out’

This morning, Sterling (GBP) was weighed down by Brexit pessimism as there were calls for Theresa May’s resignation and suggestions that if she set a date it could boost support for her withdrawal agreement.

The Prime Minister spent Sunday holding crisis meetings with fellow Conservative MPs as she made further attempts to gain support for her Brexit deal.

However, it is unclear how successful these meetings were, as it was only revealed that MPs had discussed ‘whether there was sufficient support’ to bring her deal forward for a third vote.

MP Boris Johnson who attended these crisis meetings said the government had ‘chickened out’ of delivering Brexit.

He added that the Prime Minister needed to set out ‘convincing proofs’ to show her next phase of negotiations would be different.

In the Telegraph, Johnson wrote:

‘It is time for the PM to channel the spirit of Moses in Exodus, and say to Pharaoh in Brussels – let my people go.’

Pound US Dollar Outlook: Will Rising US House Prices Cause the GBP/USD Exchange Rate Fall?

Later today, Parliament will debate an amendable motion on Brexit proposed by Sir Oliver Letwin, which could cause the Pound (GBP) to rise against the US Dollar (USD).

If this amendment is passed, on Wednesday it would provide the House of Commons with time to debate various options on how to proceed, which may provide Sterling with an upswing of support.

Looking ahead to Tuesday, January’s US Housing Price Index is due to be released, which may cause the US Dollar (USD) to rise against the Pound (GBP).

If house prices increase by 0.3% as expected in January the Pound US Dollar (GBP/USD) exchange rate could fall.

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