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GBP to USD Exchange Rate Close to 5-Month-Highs despite Brexit Uncertainties

October 18, 2019 - Written by Toni Johnson

Yesterday’s excitement that a new UK-EU Brexit deal had been reached has only had a limited impact on the British Pound to US Dollar (GBP/USD) exchange rate, as markets remember that there is not much support among MPs for the government’s Brexit plan. Despite this though, the Pound continues to perform fairly strongly today as the US Dollar is dragged by poor US ecostats published in recent sessions.

For now, GBP/USD is on track to sustain another week of strong gains. Since opening this week at the level of 1.2652, GBP/USD has spent most of the week climbing. On Thursday, GBP/USD touched on a 5 month high of 1.2939.

While GBP/EUR hasn’t been able to hold these best levels and quickly fell back on political uncertainty, weakness in the US Dollar made it easier for the pair to avoid falling too far from those highs.

At the time of writing on Friday morning, GBP/USD trends near the level of 1.2885.

GBP Exchange Rates Struggle as Investors Fear UK Parliament Could Block Brexit Deal

Putting an end to weeks of speculation and uncertainty of UK-EU relations, the UK government finally negotiated a new deal with EU officials this week.

Yesterday saw UK Prime Minister Boris Johnson and European Commission President Jean-Claude Juncker announce that a deal had been reached, and the Pound briefly surged due to the relief of the news.

However, the market’s optimism towards the news was short-lived, as attentions quickly turned back towards Britain’s domestic political situation.

Britain’s Conservative Party government lacks a majority in UK Parliament. The government’s recent parliamentary ally, Northern Ireland’s DUP Party, has indicated that it will not support the current deal.

This has led analysts to believe that it is unlikely the deal will pass, meaning a no-deal Brexit or another extension to the process are still major possibilities before the end of the month.

Naeem Aslam from Think Markets said:

‘We think this could be a chance to go short on Sterling. If the deal is rejected in Parliament, Sterling is likely to fall off the cliff due to a no-deal Brexit threat.

On the flip slide—only if a miracle happens—the deal gets green light in parliament, the Sterling-Dollar is going to shoot above the 1.35 mark—something we said yesterday.’

USD Exchange Rates Weak Following Poor US Ecostats

Concerns about the possibility of a US recession have risen this week, as have Federal Reserve interest rate cut bets.

This has prevented the US Dollar from benefitting much from the bursts of Brexit uncertainty that have limited the Pound’s potential for gains.

Wednesday saw the publication of September’s US retail sales results, which showed sales unexpectedly contracting at -0.3% month-on-month.

This was followed yesterday by some even more disappointing US industrial and manufacturing production stats. US production contracted more deeply than forecast in every notable figure.

Due to the contractions in recent data, investors continue to bet that the Federal Reserve will become more dovish in the coming months.

The poor US data, as well as uncertainty surrounding US-China trade relations, are keeping pressure on the US Dollar this week.

GBP/USD Exchange Rate Forecast: Final Full Week before Brexit Date Ahead

For now, the official Brexit date continues to be the 31st of October. However, this means that if the UK government’s new Brexit plan is blocked by parliament over the weekend, there will be fresh political uncertainty with less than two weeks left on the clock.

When markets open on Monday, the Pound is likely to weaken, assuming parliament blocked the deal as analysts predict it will. It will lead to fresh concerns of a no-deal Brexit or another Brexit extension.

The UK government has indicated it will try to avoid extending Brexit again, but a no-deal Brexit is still seen as the worst-possible outcome for Britain’s economy and Sterling.

Sterling may see a little relief if a Brexit delay is confirmed after all, but its strength will be limited amid expectations of months more uncertainty, including the likelihood of a general election.

On the small chance that the deal actually passes this weekend, the Pound would rocket.

As for the US Dollar, next week’s US durable goods orders data could cause some movement. Developments in US-China trade relations could also influence the Pound to US Dollar exchange rate.
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