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GBP to USD Exchange Rate Struggles to Recover from Half-Month-Lows amid Market Uncertainty

September 30, 2019 - Written by James Fuller

Following a broad slump last week, the British Pound to US Dollar (GBP/USD) exchange rate has been unable to sustain much of a recovery today as the US Dollar remains resilient on the back of market safe haven demand, as well as some of last week’s US data being better than forecast. The Pound’s rebound was also limited, as uncertainties in UK politics and Brexit clouded the British currency’s outlook.

After opening last week at the level of 1.2471, just below the two month high of 1.2567 seen on the 20th, GBP/USD spent the week tumbling. Ultimately, GBP/USD closed the week at the level of 1.2290, just above Friday’s lowest level in around half a month.

Today so far, GBP/USD has rebounded slightly as the Pound attempts to recover from last week’s plunge, but the pair’s gains have been limited. At the time of writing, GBP/USD was trending close to the level of 1.2305.

Investors are hesitant to buy the Pound too much against the US Dollar, as market-wide uncertainties have made safe haven currencies like the US Dollar more appealing.

GBP Exchange Rates Rebound Following Week of Losses

Investors sold the Pound en masse last week.

Following a brief boost in demand for the British currency when Britain’s Supreme Court ruled that the government’s long parliamentary prorogation was unlawful, political and Brexit uncertainties still returned full force by the end of the week.

When UK Parliament reconvened from the unlawful prorogation, MPs were quickly ensnared in clashes and investors grew even more concerned that there would be no notable progress on Brexit any time soon.

Concerns that a no-deal Brexit is possible persist this week too, with the UK government still indicating that one is possible despite a law for the government to avoid one.

Despite this though, the Pound has seen something of a rebound in demand this morning. Investors are buying the Pound back from lows in profit-taking, as the currency’s selloff lasted right until the end of last week.

Sterling’s rebound was also supported slightly by news that Britain’s latest growth and business investment stats were a little better than forecast.

Still, while the data beat forecasts it was not enough to improve analyst outlooks for Britain’s economy. According to John Hawksworth, Chief Economist at PwC:

‘These revised data do not change our view that the UK economy should avoid recession in the third quarter of this year. But prospects for the year ahead remain clouded in uncertainty until Brexit is resolved.’

USD Exchange Rates Benefit from Market’s Safe Haven Demand

Poor performance in other major currencies, combined with the latest global political and trade uncertainties, left the safe haven US Dollar one of the market’s sturdier currencies today.

As a safe haven, the US Dollar benefits in times of global market uncertainty. This means that amid the latest rise in no-deal Brexit fears, combined with German recession jitters and of course US-China trade tensions, the US Dollar is appealing.

Investors have once again become anxious about US-China trade tensions and the potential that a trade deal will not be met.

The US Dollar often weakens from US-China trade jitters due to concerns that the US economy could be impacted badly by the trade war, but weakness in other major currencies meant the US Dollar gained from the latest safe haven demand.

According to analysts from ING:

‘Were there better stories overseas, we suspect the Dollar might be a little weaker right now, but there are not (industrial production numbers are still plumbing the depths in many countries) and thus the dollar is holding its gains,’

GBP/USD Exchange Rate Forecast: Key US Data Could Dull USD Resilience if it Disappoints

The US Dollar is benefitting from safe haven demand today, but if upcoming US data worsens the US economic outlook the currency’s appeal could be dulled.

While Britain’s September PMIs will be published this week as well, Brexit focus could mean that these stats are overshadowed by UK politics and US data.

The US September PMIs, due from ISM tomorrow and Thursday, could be highly influential though. September US Non-Farm Payroll data, due on Friday, may also be highly impactful.

If the data falls short of forecasts, Federal Reserve interest rate cut bets could rise and put fresh pressure on USD.

Pound to US Dollar exchange rate investors will of course react to any surprising developments in UK politics and Brexit, with another chaotic week expected in UK Parliament.
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