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GBP to USD Exchange Rate Slumps Again as UK Brexit and Coronavirus Jitters Hit

October 15, 2020 - Written by Ben Hughes

A combination of UK uncertainties and higher market demand for safe havens is keeping the British Pound to US Dollar (GBP/USD) exchange rate weaker this week. Investors are avoiding the Pound amid concerns that Brexit negotiations could collapse or Britain could see worsening coronavirus restrictions. Meanwhile, the US Dollar remains appealing as investors concerned by global political and coronavirus uncertainties are looking for safe havens.

Unless GBP/USD recovers again tomorrow, the pair could be on track to shed last week’s gains. Last week saw GBP/USD climb from the level of 1.2933 to 1.3045 – a gain of over a cent.

This week has seen the pair trending with a downside bias instead though. GBP/USD briefly held its ground at the beginning of the week before tumbling and hitting a low of 1.2843 in the middle of the week. This was the lowest level for GBP/USD since the beginning of the month.

Last night, GBP/USD attempted to rebound, but today the pair has been tumbling once again. At the time of writing, GBP/USD is trending near the level of 1.2921 – just below last week’s opening levels.

GBP Exchange Rates Hit as Brexit Uncertainties Grip British Currency Today

The Pound outlook is filled with uncertainties today, as the 15th of October soft deadline on UK-EU Brexit negotiations has arrived.

The 15th of October was originally a self-imposed deadline by which the UK and EU said that a deal must be agreed.

However, markets and officials broadly doubt that a deal can be reached as soon as today, with progress in talks limited.

While the EU is expected to allow negotiations to continue, the UK government has yet to announce whether it will continue talks or not.

Analysts believe that too many uncertainties persist to make a solid read on the Pound’s next moves. According to Justin Onuekwusi, Portfolio Manager at Legal & General Investment Management:

‘On Brexit, we have seen negotiations with the EU go down to the wire. But the original deadline of 15 October looks difficult and we may see that postponed to end-October/early November. The next few weeks will be crucial,

We are positioned neutrally on Sterling, but given the negative news flow we might look to take a contrarian view on the currency as any deal would trigger a relief rally,’

USD Exchange Rates Strengthen as Investors Continue to Seek Safe Havens

The US Dollar is a safe haven currency, a currency which often benefits in times of global market uncertainty.

Investors have been buying the US Dollar this week, as concerns about the global coronavirus pandemic intensify, and hopes for US fiscal stimulus ahead of next month’s US Presidential Election fade.

According to Chris Beauchamp, Chief Market Analyst at IG:

‘A broader risk-off tone has enveloped markets this morning,

Steve Mnuchin’s comments about a US stimulus bill now looking unlikely before the election were perfectly placed to unseat a market that had rallied hard on hopes of such stimulus, perhaps naively,’

The US Dollar continued to benefit from safe haven demand, despite today’s US data concerning investors.

US jobless claims were much higher than expected at 898k. It worsened concerns that the US job market would only continue to worsen towards the end of the year.

GBP/USD Exchange Rate Forecast: Brexit and Risk-Sentiment Could Overshadow Major US Data

Tomorrow will see the publication of much of this week’s most influential US data.

In particular, US retail sales results from September will be published in the American session. If these stats disappoint investors, the US Dollar’s appeal could be dented slightly.

Other notable US data due tomorrow includes industrial and manufacturing production, as well as business inventories and confidence stats from Michigan University.

However, these figures are likely to be overshadowed by potential late-week political developments.

For the Pound, the biggest focus will be news on whether or not UK-EU Brexit negotiations will be extended. It’s widely expected that they will be, so any surprises here could lead to a huge shift in Pound movement.

The pair will also remain sensitive to shifts in market sentiment. If global political or coronavirus news makes markets anxious, safe haven demand could rise and the Pound to US Dollar exchange rate could fall even further.
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