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GBP to USD Exchange Rate Struggles to Recover as Safe US Dollar Firms amid Week of Uncertainty

April 26, 2019 - Written by John Cameron

As there have been no major Brexit developments lately and fresh UK data has been mixed as well, the Pound has been limp making it easier for the US Dollar to strengthen and push the British Pound to US Dollar (GBP/USD) exchange rate lower throughout the past week. Anticipation for further major US data is likely to remain in focus for investors, but next week’s Bank of England (BoE) news could drive movement as well.

Since opening this week at the level of 1.2992, GBP/USD has trended gradually lower as investors pile into a resurgent US Dollar. While GBP/USD has held above Thursday’s 2 month low of 1.2869, the pair is still on track to see notable losses this week and was trending near the level of 1.2894 at the time of writing.

While the Pound is limp amid a lack of notable support, the US Dollar has been highly appealing to investors seeking safe haven currencies due to perceived relative strength in US economic activity.

GBP Exchange Rates Fail to Avoid Losses as UK Data Offers No Fresh Support

Nothing notable has changed for the Pound in the past week, despite UK Parliament returning from its Easter recess and the Confederation of British Industry (CBI) publishing its latest UK economic health-checks.

With the UK government’s cross-party negotiations to break the Brexit deadlock perceived as seeing no notable progress, and Parliament yet to decide on any imminent plans of what path Brexit should take next, the Pound’s volatility has fallen and the British currency’s movement is limited.

Analysts expect that due to the lack of deadline pressure, it could be months before any new major Brexit progress is made. The expectations for months more Brexit uncertainty weighing on Britain’s economy is preventing the Pound from sustaining much fresh strength.

This expectation for long-term uncertainty is also dampening the Pound’s reactions to recent UK data, though the data hasn’t given investors much to be bullish about either.

While CBI’s UK retail data beat expectations yesterday, today’s CBI confidence and factory stats both fell well short of forecasts.

The Q2 business optimism index only recovered slightly from -23 to -13, and the April industrial trends orders figure unexpectedly slumped to -5 rather than the expected 3.

These figures weighed on the Pound’s recovery potential at the end of the week, making it easier for a strong US Dollar to sustain its gains.

USD Exchange Rates Supported

For most of the past week, the US Dollar has been among the most appealing major currencies. This has been due to a surge in market demand for safe haven assets, amid the latest signs of global trade and growth uncertainties.

The US ended a waiver on trade sanctions with some major nations like India, and trade tensions between the US and EU worsened as well.

On top of this, data from major nations have continued to show signs of having been negatively impacted by slowing global growth.

Part of the US Dollar’s appeal has been due to signs that compared to major rival economies like the Eurozone, the US economy remains fairly resilient.

The latest US data made investors even more confident about the US economic outlook and offered USD some late-week support, as the Q1 US Gross Domestic Product (GDP) growth rate projection came in well above expectations.

US growth was expected to slow slightly from 2.2% to 2.0%, but the latest data indicated that growth may have improved to an impressive 3.2% in the first quarter.

GBP/USD Exchange Rate Forecast: Key PMIs and Central Bank Decisions Next Week

The Pound to US Dollar exchange rate may be in for further weakness, as there is no major Brexit news expected any time soon but US data continues to impress investors.

The only notable news next week for Pound investors will be UK PMI data later in the week, and the Bank of England’s (BoE) latest policy decision on Thursday. These are unlikely to be highly influential unless they cause a shift in the Brexit outlook.

Still, if the US Dollar is to continue on its recent strong streak, it will need fresh support from upcoming US data, as well as continued market demand for safe haven currencies.

Major US ecostats will be published throughout the week and are likely to be the primary cause of GBP/USD movement in the coming sessions.

US Personal Consumption Expenditure (PCE) inflation data will be published on Monday, followed on Wednesday by manufacturing PMI data from ISM, with non-manufacturing PMI data and the April Non-Farm Payroll report due Friday.

Of course, the week’s main event for GBP/USD investors may be Wednesday’s Federal Reserve interest rate decision.

The Fed is not expected to make any changes to monetary policy, but if the Fed is relatively hawkish about recent US data it could lead to higher Federal Reserve interest rate hike bets and this would lead to even further Pound to US Dollar (GBP/USD) exchange rate losses.

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