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Pound to Dollar Exchange Rates Climb Ahead of EU Summit despite Brexit Uncertainties

April 9, 2019 - Written by Tim Boyer

Despite persisting uncertainty over the Brexit process, and the remaining possibility of the Brexit process ending with a worst-case no-deal outcome at the end of this week, the British Pound to US Dollar (GBP/USD) exchange rate has been climbing this week so far. This has been due to weakness in the US Dollar, as investors sell it from its best levels following a surge in demand on Friday.

Last week saw highly volatile movement in GBP/USD, as the pair briefly climbed to a high of 1.3188 on Brexit hopes before plunging at the end of the week on a surprisingly strong US Non-Farm Payroll report and fresh no-deal Brexit jitters. In the end, GBP/USD closed the week at the level of 1.3038, which was just below the previous week’s opening levels.

So far this week, investors have been selling the US Dollar from the highs seen at the end of last week in profit-taking and risk-on movement. The Pound’s gains have been limited though, as investors remain anxious about how the Brexit process could unfold over the coming sessions.

Pound Exchange Rate Gains Limited by Threat of No-Deal Brexit

Due to weakness in the US Dollar, the Pound to US Dollar exchange rate has risen this week even amid broad Brexit uncertainty and a lack of notable support for the Pound.

The formal Brexit date is still set for this Friday – the 12th of April. While analysts believe a delay to the process is likely, a lack of delay would mean that there are just over three days until Britain crashes out of the EU without a deal.

With the possibility of a no-deal Brexit in the coming days still a real one, the Pound’s potential for gains versus the US Dollar has been highly limited.

Some Brexit hopes have been offering the Pound a little support, but nothing major. Aside from the market expectations that a Brexit delay is likely, there are also speculation that the UK government could edge towards a softer Brexit to help it pass through Parliament.

According to Neil Jones, Head of Hedge Fund Sales at Mizuho in London:

‘For the Pound it seems like a fairly binary outcome of either a hard exit or a long delay, neither of which are positive for the currency in the medium term,’

US Dollar Exchange Rates Fail to Find Fresh Support Following Friday Surge

The US Dollar saw a surge in demand last Friday, in reaction to the latest US Non-Farm Payroll report which showed more new jobs were made in March than analysts expected.

Following a week of mixed movement, the US Dollar regained much of its losses in reaction to the report and ended the week near highs versus some major rivals.

However, since markets opened this week investors have been selling the US Dollar from those highs, in a mix of profit-taking and signs of US economic slowdown.

Friday’s US NFP report wasn’t all optimistic – the latest US wage data fell short of expectations and worsened concerns that the global economic slowdown was impacting the US economy.

It was followed on Monday by the latest US factory orders data. While February’s figure came in at -0.5% rather than the expected -0.6%, the previous figure was revised lower from 0.1% to a stagnant 0.0%.

These factors, as well as signs of recovery in Chinese data and overall higher demand for risk-taking, kept pressure on the US Dollar today.

GBP/USD Exchange Rate Forecast: Wednesday in Focus for Brexit and US Data

While hopes are rising that the Brexit process will be delayed, a delay may not be confirmed until an EU summit due to take place on Wednesday.

A longer Brexit delay is perceived as more likely than a short one. If a Brexit delay is confirmed over the coming days, the Pound may see some relief as no-deal Brexit fears would fade again.

However, a long Brexit delay also means an extended period of uncertainty with no solid solution to Brexit in sight.

Brexit news is in focus for the Pound, but the US Dollar will be driven by key US data on Wednesday.

US inflation results from March will be published and if they surprise investors they could have a notable influence on Federal Reserve interest rate hike bets and policy decision.

The Fed’s latest meeting minutes will also be published on Wednesday, meaning it is likely to be a highly influential session for the Pound to US Dollar exchange rate.
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