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GBP to USD Exchange Rate May See Further Losses if No-Deal Brexit Fears Deepen

August 30, 2019 - Written by Minesh Chaudhari

As August draws to an end, investors digest the current outlooks for global economic outlooks and politics and the British Pound to US Dollar (GBP/USD) exchange rate has been weaker as a result. Investors were hesitant to move too much on the British currency today as the week’s Brexit developments continued to weigh, while the US Dollar firmed on a mixture of month-end fixings and market reaction to the latest US-China trade developments.

Since opening this week at the level of 1.2280, GBP/USD has trended with a downside bias asides from Tuesday’s brief jump to a monthly high of 1.2296.

At the time of writing on Friday, GBP/USD was trending just above a weekly low of 1.2169 and is on track to end the week lower, but the pair has only shed around half of last week’s strong gains.

Investors have been adjusting their positions on the currencies, but next week is expected to be a significant one for the Pound with Brexit developments expected.

GBP Exchange Rates Avoiding Significant Losses despite Recent No-Deal Brexit Fears

This week, UK Prime Minister Boris Johnson received permission to prorogue UK Parliament for a notably long 5 week period before holding the Queen’s Speech for his new government.

Parliament will be closed from the 9th of September until the 14th of October, considerably cutting the amount of time MPs could have available to prevent a no-deal Brexit from happening.

The perceived chance of a worst-case scenario no-deal Brexit has risen in the past week, but despite this the Pound’s losses have been fairly limited.

This is because investors are hesitant to sell the already embattled British currency too much lower. The Pound has more upside potential due to significant losses for much of 2019.

According to Neil Mellor, Senior FX Strategist at BNY Mellon in London:

‘Though the threat of a no-deal Brexit is higher than before, extreme short positioning has been partially the reason for its strength and also some investors see value in the pound around these levels’

The Pound’s appeal was little affected by this morning’s UK consumer confidence report from GfK, which showed confidence contracting at a deeper than expected -14 in August.

USD Exchange Rates Benefit from Trade Hopes and Month-End Flows

The US Dollar has seen broadly mixed movement over the past month, as it has been hit considerably by the recent rise in US-China trade tensions and the resumption of the trade war.

Amid fears that the trade war could damage the US economy and worsen the chances of a US recession, the US currency has spent much of the month weaker.

As a result, the US Dollar has benefitted in recent sessions from hopes that trade relations could improve, as well as investors readjusting their positions on the US currency in month-end fixings.

China has indicated it will not retaliate to the latest US trade tariffs and will instead seek ways to resolve the ongoing trade war. Fresh signs that trade talks will resume in September are also supporting USD.

The latest US data has done little to dissuade lingering fears that the US could see a recession in the coming years however, as yesterday’s US growth rate projection slowed to 2.0% as forecast.

GBP/USD Exchange Rate Forecast: Brexit Developments and US Data Could Hit Outlook

Next week may be an influential one for the Pound to US Dollar exchange rate, as UK Parliament will briefly resume, US-China trade speculation will persist, and some major US ecostats will be published.

Between the 3rd of September and the end of the week, UK Parliament will be open before the Queen’s Speech prorogation begins.

Britain’s opposition parties are expected to attempt to take action to prevent a no-deal Brexit, including the possibility of a no-confidence vote in the UK government.

However, it is widely unclear if any of this action will succeed, so Pound volatility and potentially sharp movements are expected.

As for the US Dollar, it will continue to react to upcoming US-China trade developments, while upcoming data could influence Federal Reserve and US recession speculation.

US PMI data from ISM will come in on Tuesday and Thursday, with US trade data on Wednesday and Non-Farm Payroll job market stats on Friday, which could all influence the Pound to US Dollar exchange rate.
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