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GBP to USD Exchange Rate’s Fall from Monthly High Continues as Boris Johnson Reaffirms October Brexit

September 17, 2019 - Written by Ben Hughes

Last week’s surge in demand for the Pound was short lived, as a combination of Brexit jitters and global market sentiment has left the British Pound to US Dollar (GBP/USD) exchange rate weaker again this week. Sterling has been falling as no-deal Brexit fears revive, and the US Dollar has easily capitalised on this due to its appeal as a safe haven currency.

Following last week’s impressive two cent surge from 1.2281 to 1.2501, GBP/USD has been trending lower again this week. After briefly touching its best level in almost two months, 1.2504, GBP/USD has shed around a cent and currently trends nearer the level of 1.2405.

Still, despite the notable losses this week, GBP/USD has still sustained over half of last week’s gains and is a good four cents above the decade low seen at the beginning of the month.

GBP Exchange Rates Tumbling on Fresh No-Deal Brexit Fears

Last week’s brief surge in hopes for a no-deal Brexit to be avoided, as well as accompanying speculation that the UK government could soften its position on Brexit, appeared to be short-lived when markets opened this week.

Sterling soared in reaction to the speculation on Friday, but investors quickly sold the British currency again yesterday as no-deal Brexit fears returned.

The current Brexit date of October 31st is now just a month and a half away, and the UK government’s lack of perceived progress in reaching a solution as well as fresh UK-EU tensions have left investors anxious.

UK Prime Minister Boris Johnson said on Monday that while he wouldn’t break the law, Britain would leave the EU on the 31st of October with or without a deal.

This worsened concerns that Johnson could attempt to find some other loophole to force a no-deal Brexit.

Analysts warned last week that the Pound rally was not likely to last, and some are explaining again why it has walked back those gains. According to analysts from Commerzbank:

‘The decisive question for the Pound exchange rates remains whether or not a no-deal Brexit at the end of October is de facto off the agenda’

USD Exchange Rates Steady on Safe Haven Demand and Federal Reserve Anticipation

The US Dollar has been fairly sturdy this week so far, and has been able to sustain gains against many major rivals due to its appeal as a safe haven currency.

Over the weekend, a drone strike on Saudi Arabia’s biggest oil factory and an accompanying oil field dominated headlines. The factory in question supplies around 5% of the globe’s oil, and the attack has caused major uncertainties for supply.

Prices of oil surged when markets opened this week, seeing movements typically only seen in times of war or economic crisis. The safe haven US Dollar, often more appealing in times of major market uncertainty, benefitted from the news.

Still, the movement in currency markets has been limited compared to the moves in oil prices and other parts of the market. The US Dollar’s gains have been limited too, with investors hesitant to buy it too much ahead of the Federal Reserve’s anticipated policy decision tomorrow.

According to Matt Simpson, Senior Market Analyst at Gain Capital in Singapore:

‘The market is in limbo between the oil price shock and the Fed meeting,

Like any price shock, people go: ‘What the hell has happened? What do we make of didn’t really spill over to currency markets like we might have expected.’

GBP/USD Exchange Rate Forecast: Federal Reserve in Focus

While Brexit and oil market news has caused notable movement in the Pound to US Dollar exchange rate this week, movement has been limited as investors are still highly anticipating tomorrow’s September policy decision from the Federal Reserve.

The Fed is widely expected to cut US interest rates tomorrow, but the tone the bank takes on the US economy and its monetary policy outlook will be highly influential.

If the bank takes a more dovish stance like many economists speculate, the US Dollar could tumble and US recession speculation could flare up again.

On the other hand, a more optimistic tone from the bank would leave the US Dollar even more appealing amid this week’s safe haven demand.

As for the Pound, it remains most likely to be driven by Brexit speculation, but tomorrow’s UK inflation stats and Thursday retail sales data could influence Bank of England (BoE) speculation if they surprise.

The Bank of England’s own September policy decision, set for Thursday, could of course influence the Pound to US Dollar exchange rate as well if the bank shows any shift in tone on Brexit or Britain’s economy.
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