September 14, 2020 - Written by Frank Davies
STORY LINK GBP to USD Exchange Rate Attempts Rebound as USD Weakness Persists
No-deal Brexit concerns continue to weigh heavily on the Pound, but the British Pound to US Dollar (GBP/USD) exchange rate has been able to rebound from its lowest levels today. Investors are reassessing their outlook on the Brexit situation, while the US Dollar remains broadly unappealing overall. Slightly lower risk-sentiment, as well as uncertainty ahead of an upcoming Federal Reserve policy decision, are weighing on the US Dollar’s appeal.
Last week was overall a highly bearish week for GBP/USD, despite the US Dollar’s limited strength. After opening the week at the level of 1.3278, GBP/USD spent the entire week trending lower. A small recovery attempt at the end of the week was short-lived, with the pair ultimately shedding ground further before markets closed for the week.
GBP/USD closed last week at the level of 1.2797. This was just above Friday’s low of 1.2766, the worst level for the pair in over a month and a half, since late-July.
Today so far, GBP/USD has attempted to rebound as investors reassess last week’s news. At the time of writing, GBP/USD is trending a little higher in the region of 1.2898, having recovered around a cent. The pair still remains well below last week’s levels though and its potential for recovery may be limited.
GBP Exchange Rates Rebound on Hopes for Brexit Bill Backlash
Last week saw the Pound plummet across the board, as investors reacted to news that the UK government was planning to rewrite parts of the key Brexit withdrawal agreement signed at the beginning of the year.
Fears rose that the move could cause UK-EU Brexit negotiations to collapse, and no-deal Brexit fears surged.
The move was criticised across the board by both EU officials and UK MPs. Many even noted that the move was illegal. According to former UK Attorney General, Geoffrey Cox:
‘But what you can’t do, and what I think is wrong, is to abandon an agreement, to rewrite unilaterally parts of an agreement, which you only signed nine months ago, and to which we have given our solemn word,
The breaking of the law, ultimately, leads to very long-term and permanent damage to this country’s reputation. And it’s also a question of honour, to me. We signed up, we knew what we were signing. We simply can’t seek to nullify those ordinary consequences of doing that.’
However, as backlash against the bill grew, so too did hopes that the UK government would soften its stance. Seema Shah, Chief Strategist at Principal Global Investors, said:
‘The thinking perhaps is that this (bill) is just a bargaining tool and that it won’t go through parliament - this may be supporting Sterling.’
USD Exchange Rates Lack Drive amid Gloomy US Outlook
After a brief recovery attempt at the beginning of the month, the US Dollar’s bullish rebound ran out of steam last week.
Investors are hesitant to keep buying the US currency, as its outlook remains filled with uncertainties.
Not only has the US handling of the coronavirus pandemic been broadly criticised and the nation’s economic resilience mixed, but political developments have been concerning investors as well.
The US has been unable to pass new stimulus to help protect the US economy from the pandemic. On top of that, uncertainties are rising ahead of the US Presidential Election in November.
Investors are even more hesitant to buy the US Dollar this week, ahead of a Federal Reserve policy decision set for later this week.
GBP/USD Exchange Rate Forecast: Brexit and Central Bank Developments in Focus
Brexit developments are likely to remain the key focus and influence for the Pound to US Dollar exchange rate in the coming week.
UK MPs are set to vote on the government’s bill rewrite over the coming day. If there are any surprise developments, the Pound could be hit and this would drive movement in the following sessions.
However, amid a lack of Brexit developments, GBP/USD is more likely to be driven by key UK and US data.
Tomorrow will see the publication of Britain’s latest job market report. US production data will follow in the afternoon.
Towards the end of the week, central bank news will take focus instead.
Of particular influence will be the Federal Reserve
policy decision, set for Wednesday evening. While no big shift from the bank is expected, this could well be the most influential news of the week for the US Dollar.
Thursday’s session will follow with the Bank of England’s (BoE)
own September policy decision.
The BoE’s tone on further monetary policy will be closely watched and could influence the Pound to US Dollar exchange rate in the absence of major Brexit news.
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TAGS: Pound Dollar Forecasts