Pound to US Dollar Exchange Rate Outlook Climbing despite Brexit Fears
Broad weakness in the US Dollar (USD) is helping the Pound Sterling to US Dollar (GBP/USD) exchange rate to advance this week, despite concerns about politics and the economy still dominating the Pound (GBP) outlook.
After slumping from 1.2712 to 1.2631 last week on escalating Brexit fears and safe haven demand supporting the US Dollar, GBP/USD has already largely recovered those losses this week as of Wednesday morning.
At the time of writing, GBP/USD was trending closely to a weekly high of 1.2719. If the US Dollar continues to weaken in the coming days, GBP/USD may have the potential for further gains as well.
The Pound is being supported today by fresh signs of resilience in Britain’s key services sector, while the US Dollar has been sold as markets bet that the Federal Reserve will likely cut US interest rates at some point over the next year.
Pound (GBP) Exchange Rate Advances Limited as UK Growth near Stagnation
While the Pound has been able to advance against a weak US Dollar, the British currency’s appeal is limited by lingering Brexit fears and concerns about the overall weakness of the UK economic outlook.
The Pound’s support today amounted to a May services PMI that was still ultimately modest at best.
Markit’s services PMI printed at 51.0, rather than the expected 50.6. It helped to slightly offset May’s disappointing contractions in manufacturing and construction sectors, but overall the composite PMI still only came in at 50.7.
As 50 is the point separating contraction from growth, this low figure indicated that Britain’s economy was only just above stagnation last month. According to Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
‘The sector experienced the strongest, albeit still modest improvement in overall activity since February this year after a weak couple of months. However, before we bring out the bunting, a reality check is in order, as the underlying figures are still weak. Service businesses are still grappling with Brexit uncertainty, a weaker UK economy and rising operating costs.’
With Brexit uncertainty dampening Britain’s economic activity, and concerns of a no-deal Brexit returning, the Pound’s potential for gains is limited.
US Dollar (USD) Exchange Rates Tumble as Fed Chairman Hints at Possibility of Rate Cut
Despite the Pound’s own lack of appeal, the US Dollar has been one of the weaker-performing major currencies this week so far as bets continue to rise that the Federal Reserve could cut US interest rates at some point over the next year.
Multiple officials from the Fed have indicated that the bank’s policy will be appropriate in reaction to shifts in global trade tensions and how these may influence the US economy.
This includes comments from Federal Reverse Chairman Jerome Powell, who said in a speech yesterday that the bank would act ‘as appropriate’.
It marked a shift from Powell saying the bank would be patient on the economic outlook, and was the first indication so far that the Fed could be considering cutting interest rates in the foreseeable future.
Markets are now becoming more confident that a rate cut is on the way from the bank soon. According to Minori Uchida, Chief Currency Analyst at MUFG Bank:
‘The Dollar will lose some of its strength if interest rates will actually be cut in the United States,’
Pound to US Dollar (GBP/USD) Exchange Rate Investors Anticipate US Non-Farm Payroll Report
The Pound remains unappealing on UK political and economic uncertainties, but the US Dollar outlook has worsened more this week as Federal Reserve interest rate cut bets rise.
The US Dollar could be in for further losses on Fed interest rate cut bets too, as some US data due later in the week is typically influential to the Fed outlook.
Thursday’s US trade balance and Non-Farm Productivity data could cause some movement if they surprise, but Friday’s US Non-Farm Payroll report may be particularly influential.
Non-Farm Payroll data often has an influence on the Federal Reserve’s monetary policy, so any surprises here could cause a notable shift in US Dollar movement.
Weaker than expected job data would likely leave the Pound to US Dollar (GBP/USD) exchange rate higher and help the pair to sustain most of this week’s gains.
Comments are closed.